Election 2007: Governing Party Achieves Victory with Razor-Thin Majority in Greece

Greece's political landscape underwent a major restructuring yesterday. For the first time in Greece's recent history, the Vouli (parliament) will consist of five parties. Voter turnout in yesterday’s election was a respectable 74.2%, partly fuelled by politicians’ calls for the electorate to have their say following the recent devastating forest fires (see Greece: 31 August 2007: Election 2007: Forest Fires Threaten Continuity of Greek Government’s Reform Plans). The electorate re-installed the governing centre-right New Democracy (ND) party with 41.9% of valid ballots cast. Although this is down 3.5 percentage points from its result in the 2004 general election, it gives the ND the outright majority it needs to push through its policies. Nevertheless, this opposition will remain fierce given the new composition of the Vouli. The ND's main challenger, the socialist Panhellenic Socialist Movement (PASOK), won 38.1% of the votes (down 2.5 percentage points from 2004), but the main gainers in this election were the smaller, splinter parties: the Communist Party of Greece (KKE) and the Coalition of the Radical Left (SYRIZA) both made significant gains each, with SYRIZA almost doubling its seats compared to 2004 (KKE: +2.2 percentage points from 2004; SYRIZA: +1.8 percentage points from 2004). The biggest celebrations will have taken place at the radical, right-wing Popular Orthodox Rally (LAOS), which won 3.8% of the vote.

The outright majority provides the ND with the mandate it was seeking for the continuation of its reform agenda. On top of fulfilling its pledges from the 2004 general election, the ND now has to find the funds to finance its latest promises: generous tax cuts and a swift reconstruction of the areas devastated by the forest fires (see Greece: 11 September 2007: Election 2007: Greek Finance Minister Promises Major Tax Cuts if Current Government is Re-Elected). In his victory speech, Prime Minister Costas Karamanlis vowed to fight poverty and maintain a stable economy in a relaxed and co-operative political climate. This statement contrasts starkly with Karamanlis's pre-election thundering that he would not govern in a coalition should the ND not achieve an outright majority. That announcement had highlighted the ND's willingness to push through its agenda alone rather than seek compromise, and thereby alerted its opponents in the public sector and other parties alike.

The victorious party will now seek to implement the following measures:

• Continuation of reform agenda.
• Revision of Article 16 of the constitution to introduce private universities.
• End to all irredeemable jobs in the public sector ("jobs for life").
• Generous tax cuts for first-time house buyers and scrapping of inheritance tax.

However, government spending and the tax cuts will take their toll on economic stability. Greece currently boasts economic growth of 4%, making it one of the European Union’s (EU) better economic performers. In response to the recent fires, the nervous government had paid 24 million euro to 7,000 victims by late August alone, in an attempt to atone for its slow initial reaction to the crisis and to avoid greater socio-economic damage. The government is at pains to stress its ability to keep the budget deficit below the 3%-of-GDP ceiling prescribed for members of the Eurozone. Yet, its generous economic policy plans will most certainly take their toll on the high-performing economy; Global Insight has predicted real GDP growth to fall from 3.9% this year to 3.6% in 2008.

Outlook and Implications

New Democracy’s risky decision to call early elections has paid off: victory yesterday has given it the time and public mandate it needed in order to continue with its ambitious reform agenda. ND won 41.9% of the vote, giving it the outright, albeit meagre, majority it had hoped for. However, with only 152 members of parliament (MPs) in the 300-seat Vouli, the government will not have an easy ride. First, the party's pro-reformers must keep its dissatisfied MPs on board. Second, the opposition parties have won seats and become more diversified. The government will face fierce opposition from both PASOK as well as the smaller, more radical parties. This could threaten the generous tax cuts that the finance minister had promised earlier this month. PASOK had fulminated against any tax cuts benefiting the more affluent members of society, and it will maintain pressure on the government to scrap this measure, backed by the smaller, more radical left-wing parties.

Outside of the Vouli, the ND's major opposition will come from public-sector employees, who fear for their jobs as a consequence of the planned cuts in government spending. The government has had a hard time convincing employees and students in the tertiary sector and beneficiaries of social welfare of the need for its reform agenda (see Greece: 26 March 2007: Disruptive Greek Education Protests Called Off, but Unions Pledge to Continue Resistance to Reforms). PASOK will back the protests of its main voter base in order to keep up the pressure on the government, thereby weakening the ND's ability to gain public support for its measures. Smaller parties, such as the LAOS, will regard the government's reform plans as an ideal opportunity to demonstrate their newly gained legitimacy to speak "for the people”.