(...) From the standpoint of getting the Greek economy growing again, the election was extremely frustrating for Greek voters.  There were no pro-growth parties on the ballot.  No one running for office seemed to realize that Greece’s only hope for economic recovery is income tax rate cuts large enough to cause the current capital outflows to reverse, and induce people to start investing in the Greek economy once again.
At this point, the entire Greek political establishment seems to be infected with the Keynes virus, a pathogen that alters brain chemistry in a way that makes people believe that it is government spending (and only government spending) that produces economic growth.  Keynesianism, which is the name of the mental illness caused by this virus, has been claiming victims worldwide, including Francois Hollende in France and Barack Obama, Larry Summers, and Paul Krugman in the U.S.
Oddly enough, ordinary people seem to be immune to the Keynes virus.  They retain the ability to see that high taxes discourage economic activity, and that a bankrupt nation cannot spend its way to prosperity.
Given the choices presented, all the Greek electorate could do was to play for time and hope for some kind of pro-growth miracle.
The election results created some likelihood that the “Troika” (the EU, the ECB, and the IMF) will deliver on the promised €130 billion second tranche of bailout funds.  Unfortunately, without tax cuts to revive investment and production, this money will be sucked into the black hole of Greece’s imploding economy, never to be seen again.  This was the fate of the first tranche of bailout money (nominally, €110 billion).
Perhaps even more important to ordinary Greek citizens, buying time allows the “silent bailout” of Greek bank deposit holders by the European Central Bank (ECB) to continue.
Since the start of 2010, Greeks have withdrawn about €80 billion from Greek banks.  This is about a third of total deposits.  A large portion of the assets of the Greek banking system consists of Greek government bonds, which cannot be sold for anything close to book value, and which are not acceptable collateral at the ECB discount window.  Accordingly, Greek banks have been obtaining the euros required to meet customer redemptions from the Greek Central Bank (GSB) via the ECB’s “Emergency Liquidity Assistance” (ELA) program.  The ELA amounts to a line of credit from the ECB to the GSB, with repayment guaranteed by…the Greek government.
The ECB has been secretive about the magnitude of ELA loans outstanding and the identities of the borrowing national central banks, but it is clear from the data available that the total ELA loan balance has been rising rapidly.
Because Germany is ultimately “on the hook” for the economic value of ELA loans, it will be interesting to see how long they are willing to allow this “silent bailout” to continue.  However, without ELA, the Greek banking system would collapse, taking what remains of the Greek economy with it.
When Americans go to the polls in November, they will have Greece as a stark reminder of the consequences of tax increases and out-of-control government spending.  Fortunately, it appears that, unlike Greece in the June 17 election, the U.S. will have a party to vote for, the Republicans, that is at least nominally “pro-growth”.
Because Mitt Romney’s platform calls for tax cuts, and Obama is promising tax hikes and more Keynesian stimulus, Jude Wanniski’s political model would predict that Romney must win.