5 Things: The Greek Election

Greece's Parliamentary elections are just around the corner. Here's a quick primer for anyone whose attention has faded.

With all the news coming out of Greece recently, it's easy to miss that their Parliamentary elections are coming up -- they're scheduled for April 19. One has to wonder how the austerity measures and the European Union might be affected by one government and a possible change in political thinking. What about the broader influence these elections could have on the world market?

We've got a few things you should keep in mind.

5. They're already late.
The elections for Parliament members were supposed to take place in February. However, Parliament was having enough trouble at the time from pushing through the EU debt deal. Elected members from the main two political parties contented with some infighting. The far right LAOS party left before a vote could be made. Plus, the voting Greek populace was violently taking to the streets to protest the deal. With the acceptance of the EU austerity measures only hours old, Parliament pushed back elections until April. The election postponement came at the request of Germany, which recognized that the Greek government needs time to apply the austerity measures.

4. Voters will have more to complain about in the coming months.
The Greek government has signed an agreement to implement the austerity measures, no matter who wins the elections. To secure the bailout loans Greece has had to cut back government and pension spending, and the minimum wage. The pension cuts alone are shocking at 12% cuts for monthly pensions and 30% for supplementary pensions. The minimum wage cuts take 22% out of the regular monthly wage of 751 euros, and takes 32% out of the minimum wage for those under 25 years old. That last part hurts a little more considering youth unemployment in Greece is at almost 50%. Greece's minimum wage is still higher than that of many other countries, including Spain, Portugal and Greece.

These are only part of Greece's plan to cut 3.2 billion euros from their budget. There's still another couple billion euros getting cut from health, education, and defense spending. It's going to be hard to simply survive in Greece.

Some Greeks are fleeing the homeland for more prosperous shores, like Queens, New York. Public radio station WNYC has reported on waves of Greek immigrants settling in Astoria to look for work. Even in our current economy, the American job market is less frightening than austerity.

3. Elected officials supporting the debt deal will probably keep their jobs.
In theory, Parliament members who voted to accept the EU deal should be scared for their continued employment. But it seems that the chances of them being tossed out of their seats are not that high.

Reuters reported on opinion polls for the embattled New Democracy and PASOK parties showing very low approval numbers. But those numbers did go up once protest voters, non-voters, and the undecided were removed from the results. It looks like New Democracy and PASOK will continue to govern together as an uneasy coalition.

Technocratic Prime Minister Lucas Papademos was placed into the office to lead Greece through their first bailout. But, in a move to help cut costs, Papdemos gave up his salary. That will buy him some sympathy in the public eye.

2. The requirements of the deal are also not attractive to Greek creditors.
This is the second bailout Greece has received in two years. If Greece defaults, it spells trouble for the euro (FXE). The EU isn't giving them more money without some reassurances.

In addition to spending and government programs, bonds will also be affected by the austerity measures. Those in power will have to do a bond swap with their private creditors as part of the deal. The plan is for Greece to swap the bonds of private holders with a bonds package and hard currency. Investors would lose up to 75% of the value of their holdings in exchange for the new Greek bonds, but the move will eliminate approximately 100 billion euros from the debt. (The debt exchange prompted Moody's to downgrade Greece to its lowest rating, "Ca," on the basis that the exchange is expected to cause major investor losses.) These bond swaps could also trigger payouts on credit default swaps, which are like bond insurance. If these payouts happen, the Greek bonds swaps will be costly to the eurozone.

The banks and creditors that lend to Greece have no real say in the matter. If 75% of these holders agree to the swap, Greece can force the rest to participate through a collective action clause. As of today, banks representing 40% of the debt had agreed to the deal, prompting officials to believe that the basic threshold will be met. Athens has warned that investors who refuse to sign up for the deal will lose the full value of their bond holdings. Investors have until Thursday, March 9 to make their intentions known.

1. No matter who wins or what they do, things are still going to get worse.
Anyone elected into office now faces the challenge of a country with an increasingly bleak future.

With so many people scrambling for money, there will be some improvised opportunities. Some have taken it upon themselves to go around the middleman and sell directly to the people. Potato farmers are skipping the market altogether, selling potatoes directly to the people at cost. Sales like this are becoming more common, providing cheaper food and slightly more profit for all involved.

Hope is in such short supply that the most taboo of issues has grown exponentially; the suicide rate in Greece has shot up 40%, giving them the fastest growth in suicide in the entire EU. This is even more distressing since the country used to have one of the lowest rates in Europe.

The Greek economy is birthing many new problems, but these are just the start. Imagine what will come of a Greece several years into austerity and living on a shoestring. That's the Greece these elected officials will have to address.

For a deeper understanding of what a Greek default would mean to the eurozone and the world, The Athens News has the full report from the Institute for International Finance.

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