[Originally posted at my Wordpress blog]

The results of the Greek election on 6 May 2012 proved more confusing than most observers expected. The two previously dominant, centrist, pro-European parties—New Democrats (ND) and PASOK—received a slightly smaller share of the vote (32%) than pre-election polls suggested, confirming their post-2009 collapse (when ND and PASOK gained 77.4% of the vote.)

What should a foreign observer make of an exceptionally messy result? Two broad trends can be discerned:

The Electorate Is Severely Divided

Voters abandoned PASOK and ND en masse—but did not settle on a single alternative voice. Perhaps the most illustrative figure here is the 13.2% of the vote that did not go to the top 9 parties. (The comparable figure for 2009 was ~1.2%.) Such is the fragmentation of the electoral that almost 1 out of 7 votes went to parties which never stood a chance of forming a government. As mentioned above, less than a third of voters stuck with the ND/PASOK duopoly, effectively ending centrist politics as we know it—whilst opening a path for hard-line ideological parties.

The big winners were SYRIZA ( the Coalition of the Radical Left), Independent Greeks (an ND splinter group) and Chrysi Avgi/Golden Dawn. SYRIZA mostly benefited from defections from PASOK and the Democratic Left in the run-up to the election, while the Communist vote increased marginally. SYRIZA’s showing should not be too surprising: It is anti-austerity, pro-euro, and unquestionably leftist. The latter point is important—a majority of MPs in the current parliament represent parties of the left, broadly defined, in a country with a long history of radical left politics.

Yes to the euro, No to Austerity

This should go without saying—as an electoral choice, austerity has been decisively rejected by an overwhelming proportion of the Greek electorate. 6 out of 10 of MPs in the new parliament represent parties rejecting the Memorandum: the austerity programme set as a condition for European Union/IMF financing. The four main ‘pro-memorandum’ parties—New Democrats, PASOK, and two liberal parties, DRASI and DISY—received less than 37% of the vote.

Nevertheless, the vast majority of Greeks want to keep the euro as their currency—70% according to one poll. Are these two positions irreconcilable? Not necessarily. Contrary to the public statements of officials across the continent, Greece cannot be kicked out of the Eurozone through any legal mechanism. This does not preclude the Eurozone’s 16 other members trying their best to throw Greece out. Yet, forced between having to exit the European Union entirely—the only explicit legal channel for a Greek pull-out—and staying de jure in the euro-club, it is possible to imagine a situation where Greece is both illiquid and (nominally) a Eurozone member.

A Second Chance?

The Greek president has called a new election for 17 June after failed attempts by ND, SYRIZA and PASOK (each in turn) to form a government. The Greek results have focused minds at the European and global levels, with prominent European voices now openly speculating about Greece’s withdrawal from monetary union. Greece’s creditors—the European Union, the IMF and what remains of private sector bondholders—surely hope that the June election will return a parliamentary (if not ballot-box) majority favourable to the current austerity-bailout programme. The Greek people, in turn, must decide whether they risk giving SYRIZA a mandate to renege on the current programme—a decision the EU might in due course reject.

It is nevertheless clear that SYRIZA will be a force to reckon with after the June election. Every poll since 6 May has given them at least 20% of the vote, leading or slightly trailing ND as the first-party. It is very likely we’ll see SYRIZA commanding more than 120 seats in the next parliament on current projections—putting them on the path to forming an anti-austerity front. I am cautiously optimistic about a decline in Golden Dawn’s turnout next-time around, as most polls project a fall in their vote since the May election.

Greece’s Choice

How will the Greek crisis end? That is a topic deserving its own post. If ND eke out a win with enough seats to form a coalition with PASOK, then Greece will continue with its current programme of labour-market ‘reforms’ coupled with severe austerity, at least until Greece musters a primary budget surplus. (After which even ND might consider defaulting on all of its external debt, the consequences be damned.)

But if SYRIZA cobble together a broad anti-austerity front, all bets are off. Either the EU and IMF decide their previous strategy has failed, or they dig-in and demand Greek acquiescence. In the event, it is likely the markets would pre-empt both sides: expect an accelerated bank run, a sudden credit stop throughout the economy, and the collapse of Greek banks. Greece would then have to make its fatal choice between doing everything it can to keep the euro, or risk introducing its own currency under the severest of conditions. In short, Greece would be forced from one disastrous outcome to another—with millions of ordinary people suffering the consequences.

Greece’s creditors have, and have had the choice to lessen the country’s burden without a wholesale rejection of current policy (though I strongly advocate the latter.) In a less stupid world, the European Central Bank would backstop European sovereigns as much (if not more than) it already backstops private-sector (read: democratically unaccountable) banks. In a less stupid world, Germany would lead a domestic demand-led dash for growth in the Eurozone core, spurring peripheral exports through more public-sector spending, higher German wages, and a medium-term higher-than-desired inflation rate. In a less stupid world, core Europe would recycle the fruits of its competitive advantage (and excess savings) back into peripheral Europe through a new Marshall Plan.

In a much less stupid world, countries would break—once and for all—the vice of high finance, subjugating financial markets to the full power of the state, if not directly through public ownership, then indirectly through a liberated fiscal policy, doing away with the antiquated notion that countries remain solvent at the behest of international capital. In an age of electronic money and free-floating currencies, the gold standard mentality continues to dominate public discourse, with disastrous consequences.

Even now, at a minute to midnight, nothing is inevitable; the worst outcome need not be Europe’s fate. The economy remains the realm of human choice and determination. It is a purely human construct, one which men and women have it in their power to shape—for good or ill. ‘There is no alternative’—the fatalist assumption of two generations of leaders—is the beguiling mantra of the feckless and stupid, or sadistic politician. It is an abdication of responsibility at best, a conscious imposition of conspicuous immorality at worst.

Europe’s politicians must face up to the havoc they have caused: four years of recession, resulting in a loss of one-quarter of Greece’s output and a historic 21.7% unemployment rate, to say nothing of the secondary effects caused elsewhere. It is time to say enough is enough to failed policies and wasted lives.