Greece Politics: The Spanish Impact

Last weekend (June 9th-10th) Spain secured a €100bn bail-out for its ailing banking sector. The bail-out differs significantly from those extended to Greece, Ireland and Portugal over the past few years. It is limited to the banking sector, and comes with no additional fiscal austerity targets attached. Greek politicians from left and right, who are in the middle of a tough election campaign, have tried to capitalise on the latest bail-out for their respective campaigns. It is far from certain whether the Spanish bail-out will have any significant impact on the election outcome, but it goes to the heart of Greece's political and economic dilemmas—which are very much linked to the European context.

Greece is in the middle of a tough election campaign, which has turned into a two-horse race between the centre-right New Democracy (ND) party and the left-wing Coalition of The Radical Left (Syriza). Both of the front-running parties are trying to exploit the Spanish bailout for their respective campaigns.

Syriza claims that the latest euro zone bail-out for Spain highlights the fact that the euro crisis is a "pan-European" problem and that the euro zone's focus on making bail-out funds conditional on tough fiscal austerity has failed. The leftists see the Spanish bail-out as a way of boosting their core election message: they want to abrogate the Memorandum of Understanding (MOU) that Greece has agreed with its EU partners as part of the bailout, which includes a tough fiscal austerity agenda.

However, there are some important differences between the two countries. Spain has already implemented a tough fiscal austerity agenda even without EU/IMF conditionality, which is why the Spanish bailout has no fiscal targets attached. Greece's two bailouts, in contrast, arguable needed to have fiscal conditions attached; otherwise the government might not have embarked on fiscal austerity in the first place. Whether Greek voters will spot this basic difference between the Greek and Spanish situations is a different question altogether, though.

Isolating itself?

It is not just Syriza that wants to exploit the Spanish bailout for its campaign. The pro-bailout ND claims that the Spanish bail-out shows that Greece should not isolate itself and abandon talks with its EU/IMF partners (which they accuse Syriza of planning). Instead, it sees the bailout as a sign that the Spanish government achieved a more favourable deal through constructive negotiation with its European partners. Hence, they conclude that Greece should not disengage from its partners but continue to negotiate after the election to solve Greece's own issues. This fits with ND's core message: it wants to renegotiate the MOU but sees the Greek bailout as essential to guaranteeing Greece's survival within the euro area.

Meanwhile, the third-placed party in the latest opinion polls, the centre-left, pro-bailout Panhellenic Socialist Movement (Pasok), has also entered the debate. It interprets the Spanish bailout as a sign that the euro zone is trying to build a stronger firewall to protect itself from a potential Greek euro exit following the election. This is the opposite interpretation to Syriza's, suggesting that Pasok fears that the Spanish bailout may make it harder for Greece to renegotiate its own bail-out.

These opposite interpretations should be seen in the context of the overall Greek election campaign, which is viewed by many as a referendum on the euro. All three front-running parties claim that they want Greece to remain within the euro zone, but Syriza's position (pro-euro, anti-MOU) is seen by ND and Pasok (and many external observers) as unrealistic and endangering Greece's euro membership. ND and Pasok hope that their more conciliatory stance will allow them to form a pro-bailout coalition after the election, but Syriza may end up as the strongest party (the front-running party gets a 50-seat premium in the 300-seat parliament ; therefore it has the best chance of being included in a government coalition). Either way, the Spanish bail-out may be on many Greek voters' mind when they vote next Sunday. With the election too close to call, Greeks’ reaction to the Spanish deal could still decide the result of the vote.

Source: ViewsWire