Greek Prime Minister George Papandreou has announced his impending resignation after the makeup of the nation’s new coalition government is decided.
The announcement follows a period of economic, political and social turmoil in Greece, following the call for a referendum on the 130 billion Euro bailout deal and the vote of confidence on Friday. The Greek Prime Minister will be meeting with the head of Greece’s leading opposition party, Atonis Samaras, on Monday to discuss the future Prime Minister of Greece. Candidates for the job include Petros Moliviatis, Loukas Papaimos and the current Finance Minister. The new government is intended to have a life of four months, in which it will disperse following elections held in early Spring. The news brings a semblance of solidarity and security to the EU after periods of intensified aggravation and incredulity among Euro Area leaders, such as French President Sarkozy and German Chancellor Merkel. The decisions appears to conclude a chapter in Greece’s harrowing political and economic crisis, as Papandreou had made himself and Greece a symbol of criticism from the animosity of Euroskeptics to the leader of countries exposed to its sovereign debt.
“We have called for national unity government and remain persuaded that it is the convincing way of restoring confidence and meeting the commitments.” – Olli Rehn, European Economic and monetary Affairs Comissioner
The EU has made it clear it wants coalition government in Greece to ensure consensus support for reform and restore confidence after a week that saw Papandreou first call for a referendum and then backtrack under international pressure. Following the onslaught of domestic division and international criticism, Prime Minister Papandreou narrowly won a confidence vote on Friday night, but has continued to be under pressure to resign amid chaos over the prolonged debt crisis. The Prime Minister had been trying to build a national unity government but opposition leader, Samaras, of the New Democracy party, had been refusing to negotiate unless his rival resigned first. The two men also disagreed sharply on the timing of new elections, with Papandreou seeking a delay of several months while Samaras wanted them immediately.
The political game of brinkmanship intensified the volatility of markets, sensationalist media and the fury aimed at Papandreou. Among the uncertainty, the political wrangling has led to speculation that the new coalition government will be headed by Finance Minsiter Evangelos Vanizelos. The Finance Minsiter has already faced international pressure considering his prominence in the efforts to undertake the needed austerity cuts and reforms demanded by the Eurogroup. His ability to compensate with transition from fiscal to political leadership will be severely tested. Among his many challenges comes the meeting of the Council of Finance Ministers in Brussels on Monday, in which he must convince the Eurogroup members of Greece’s ability to utilize the bailout package to effectively reform their economic system. Vanizelos faces international criticism, domestic anger at the already a large number of implemented austerity measures and will also face the possibility of Greece leaving the Euro, which has been raised by EU leaders if Greece fails to resolve its political and financial problems.
“It is all very fragile and the markets are requiring stronger leadership from within these countries as well as from the ECB.” – Jim O’Neill, chairman of Goldman Sachs Asset Management
Much of the increased pressure has come from what many have terms a new informal leadership directorate, a new politburo, known as the Frankfurt Group. The inner circle compromises the leaders of Germany and France, the President of the executive European Commission and of the European Council of EU leaders, the heads of the European Central Bank and the International Monetary Fund, the chairman of the Euro Area Finance Minister and the European Commissioner for economic and monetary affairs. The group has grabbed the helm of the 17-nation currency area, illustrating their prominence and dedication by meeting 4 times on the sidelines of last week’s Group of 20 Summit in Cannes. The group was responsible for the ultimatum to Greece that clearly stated that if Greece were to not meet European regulations, it would not receive another tranche of bailout funds. The group has also escalated supervision on Italy by demanding it carry out the long-delayed economic reforms and to also let the IMF monitor their progress.
Ultimately, the Frankfurt Group aims to bridge the ideological gulf between northern and southern European, and between supporters of the orthodox German focus on fiscal discipline and an independent central bank with the sole task of fighting inflation, and advocates of a more integrated and expansive economic and monetary union.
“There is always a trade-off between legitimacy and efficacy. The Euro Area institutions were not designed for crisis management so we need innovative solutions. In an emergency like this, we have to have a structure that works.” – Frankfurt Group official
As stated in a previous blog (EU: Supranational Entity, Supranational Problems) the needs for strict German leadership is clear considering the growth of the country, its experiences historically, its resilience and its persistent calls for reform and supranational regulation and supervision demonstrate its determination to ensure the stability and security for the Euro Area. It is for these reasons that the Frankfurt Group clearly illustrates the progress towards fiscal responsibility and reform for the Euro Area members. The Frankfurt Group has already had an impact in the Euro Area crisis management but due to its informality and exclusivity, it has begun to stir resentment among those who are excluded. North European creditor countries such as the Netherlands, Slovakia and Finland, where public hostility to further bailout packages is fierce, are already voicing opposition to decisions being taken behind their backs. In Greece and Italy, there has been strong criticism of the perceived arrogance of “Merkozy”, as the Franco-German duumvirate have become known, in summoning their Prime Ministers to receive ultimatums. Nevertheless, German and French officials shrug off such complains as inevitable, noting that EU partners are even more unhappy when France and Germany do not agree, as such disruption lead to European paralyses.
In retrospect, the series of events have illustrated a new era in EU politics that may present an evolution of the supranational entity into a new era for progress and integration. With both Papandreou and Berlusconi on the verge of leaving office, reform in the two highly indebted nations is on the precipice. In addition, the creation of the Frankfurt Group has solidified talks among the institutions and leaders that have the responsibility and power to shape the future of the EU. With the inclusion and prominence of Germany, it may be reasonable to argue that the heavy-handedness of Germany’s worth ethic will be essential in the coming months.