The Greece question
THE outcome of the weekend's French election may have gotten more headlines, but the results in Greece are the more surprising, and impactful. Charlemagne writes:Enraged voters punished Greece's once-dominant parties, the socialist Pasok and the conservative New Democracy, which had formed a unity government and accepted the unpopular terms of the second EU-IMF bail-out. With the count still taking place, the two parties secured less than 35% of the vote, which means they will struggle to form a majority. Anti-austerity Greek parties, of the left and the right, have done well. Syriza, a radical left-wing party, pushed Pasok far into third place. The far-Right Golden Dawn was poised to enter parliament for the first time.Antonis Samaras, leader of New Democracy, which won the biggest number of voters, said he was prepared to forge a government of national unity based on two points: that Greece remains within the euro, and that the bail-out terms are renegotiated. (See here for background on forming the government)The fragmentation in Greece will inevitably raise the question of whether the country will leave, or be pushed out of, the euro zone. Until now European officials have been adamant that any breach of Greece's second austerity and reform plan would lead to the halting of its rescue funds.Greece will try to piece together a government this week. There are more interesting elections to come. France will elect its National Assembly in June. Ireland will weigh in on the fiscal compact later this month. Meanwhile, Matt Yglesias makes a salient point:All that said, when very plausible story of what happens next is simply that the European Central Bank will decide it needs to bring the continent's newest leader to heel. If the ECB signals that it will only support the French banking system and the French economy if Hollande sticks with the status quo program, then Hollande may well have no choice. Elections in Europe aren't necessarily what they used to be. Nobody's crying over Silvio Berlusconi but he was Italy's elected Prime Minister and he lost power not in an election but it a made-in-Frankfurt call by the central bank.This applies not just to the French case but to the euro-zone economy more broadly. It's quite possible that the ECB will prove unwilling to accommodate a weaker commitment to short-term austerity. Such a determination would be disastrous—potentially fatal—for the euro zone, but it may feel, rightly or wrongly, that it will be unable to do its job without a sufficient political commitment to fiscal discipline. The irony, of course, is that it is the ECB's failure to aggressively ease in the face of continent-wide budget cuts that allowed those cuts to translate into a painful recession, which in turn fueled an austerity backlash. The ECB is responsible for the high multiplier on euro-zone fiscal cuts.It's possible that elections will lead to a positive change in Europe. More probably things will continue to deteriorate, albeit in a slightly different way.