After Ireland, Spain, even Greece is starting to talk about early elections. George Papandreou seems on the edge of the precipice but resignation is nowhere near his goal. In fact, the Greek prime minister has declared himself ready to accept the establishment of a transitional government that will lead the country to early elections, but not to leave his post.
Tomorrow in Parliament there will be a vote for confidence and he could even obtain it, since he has satisfied the opposition by assuring that the referendum will not take place. Center-right party leaders Antonis Samaras said he was ready to compromise with the majority to form a transitional government and quickly organize early elections. The markets, also in the wake of the ECB's decision to cut interest rates, literally exploded at the news, with Piazza Affari closing with over 3%.
Still, Greece's problems are by no means solved. Papandreou, more than many other European politicians, has taken responsibility for him trying to carry on unpopular reforms: the 5 general strikes that followed in 2011 are the most obvious example. In two years it has announced 3 austerity reforms, the last of which provides for savings of 78 billion, between privatizations and cuts in public spending, by 2015; the leader of the socialist party (Psok) has displeased all social groups by reducing pensions, freezing and decreasing salaries and increasing taxes (especially on real estate). In addition, he forced every citizen to pay a solidarity contribution to the state, based on their income. But that wasn't enough: the rating agencies continued to lower their rating on Greece, which is now considered by all to be at risk of default. From the Troika (IMF, ECB and EU) it has received so far five tranches of aid, and the sixth, worth 8 billion, was expected by November (but was then postponed until the announcement of the possible referendum).
However, the conditions of the Greek economy show no signs of improving and so spread between Greek government bonds and 10-year German bunds exceeds 2.400 basis points. Unemployment was close to 18% in July, GDP growth is estimated at -3,5% for 2011 and a fiscal deficit of 9,5% is expected.
With tomorrow's vote of confidence they will open two possible ways. Papandreou could gain confidence and continue on the path of austerity by relying on the 110 billion euros of aid planned for the next two years. Or, more likely, he will not win the trust and will establish a government of national unity to lead the country towards early elections.
