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Greece is voting for a new parliament today and according to the political observers, this is the most critical vote in recent Greek history. The results are largely known in advance, as all polls have indicated the coalition of the radical left SYRIZA as today’s winner. The big question is not who will win the elections but what the winner will do having won them. GRReporter published today an article by eminent Greek economist Panagiotis Liargovas, professor at the Peloponnesian University and coordinator of the office for execution of the state budget to the Parliament of Greece. The article is reprinted from the online edition capital.gr.

The day after the elections will present the new government with important challenges, as it will have to meet the expectations and requirements of both the lenders and the policy of austerity imposed due to the country’s presence in the euro area and the EU, with or without the memorandum, as well as the expectations and requirements of voters. Throughout the election period, to a lesser or greater extent, they were promised tax relief, restoration of the social and welfare state, secure pensions, increasing disposable incomes... Thus, there will be strong pressure from opposite sides on the new government, as many of its campaign promises are in sharp contrast with the previous commitments to the lenders and their requirements.

At the same time, the new government will have to deal with the financial and macroeconomic environment in the country and the prospects that it imposes. 2014 reality can be reflected from the positive side, based on the main indices, namely a 0.6% increase in GDP, a surplus in the current account deficit of around 2.5 billion euro (the latest data available is from November), and a primary budget surplus of around 1.9 billion euro. However, the sad fact is the existence of a primary debt of around 177% of GDP, a very high unemployment rate of around 25%, arrears of individuals to the state of approximately 74 billion euro, arrears of the state to individuals amounting to about 4.5 billion euro, non-performing loans of about 80 billion euro, unviable insurance funds, destruction of the purchasing power of citizens as well as of savings and investment.

The new government will find schedules and obligations on a number of issues that probably will be partly changed. These include the following:

• Contract for the preconditions (financial deficit, reforms) by the end of February 2015 and the assessment of the adjustment programme (Memorandum II), with a possible new extension.

• Contract for a coherent national reform and development programme

• Payment of the latest instalments

• Approval of the "precautionary credit line" of the European Stability Mechanism

• Easing the debt servicing (according to the commitment of the Eurogroup as of November 2012!)

The new government has to take the decisions as quickly as possible after the elections. Firstly, to change the climate resulting from the announcement of the elections, the failure to reach an agreement with the Troika and from the attempt of the government of New Democracy and PASOK to resort to markets in October 2014 without the relevant agreement. Secondly, in order for the short-term loans for 2015 to be served and for the interest to be paid.

There could be immediate problems if the outflow of capital and deposits from the banks continued. Even that reason alone requires a minimum understanding between the parties and the Troika! If the outflow were combined with the suspension of the cheap financing to the banks by the European Central Bank, something that we do not consider possible despite the clear position of the Bank, severe liquidity problems would occur and, therefore, there would be further restrictions in the funding of the actual financial activities. Then the continuing uncertainty regarding the next steps would negatively affect the expectations and could lead to a downward trend in the growth rate.

We must not forget that quite an ambitious target is set for 2015, namely to increase the actual GDP by 2.9%. In other words, this means that during the long and possibly difficult negotiations, the Greek economy will not only have to function normally, but to achieve a significant development. Therefore, wasting the first half of this year will be a huge failure, in terms of both fiscal discipline and growth potential. That is, the main issue should be to create a climate of stability, confidence and normalcy in the Greek economy.