Bloomberg News

Greece Strives for Government After Election Raises Doubt

May 11, 2012

Pasok leader Evangelos Venizelos. Photographer: Simon Dawson/Bloomberg

Pasok leader Evangelos Venizelos. Photographer: Simon Dawson/Bloomberg

Greece’s political leaders are locked in a fifth day of talks to carve out a government, with Evangelos Venizelos, the socialist Pasok leader, pressing counterparts on a proposal for a unity government that would avert a new election amid mounting concern of a euro exit.

New Democracy leader Antonis Samaras was first to meet with Venizelos, who received the mandate to form a government yesterday. Samaras said Democratic Left leader Fotis Kouvelis’s unity proposal designed to keep the country in the euro region was similar to his own, meeting two key points of keeping the country in the currency union and renegotiating bailout conditions to boost growth.

“We are fighting to form a government and there are still hopes for this,” Samaras told his lawmakers after the meeting in comments televised live on state-run NET TV. “If there are elections, which I repeat there shouldn’t be, the dilemma for voters then will be whether we stay in Europe and the euro.”

Greece’s political impasse since the inconclusive May 6 election has raised the possibility another vote will have to be held as early as next month, threatening the implementation of austerity pledges. The standoff has reignited European concerns over Greece’s ability to hold to terms of its two bailouts negotiated since May 2010 and sparked concerns about the country leaving the euro.

Opinion Poll

Kouvelis, whose party holds 19 seats in the 300-seat parliament, said the unity government would last until 2014 and would have a specific agenda to negotiate a gradual “disengagement” from bailout austerity measures. He called on all parties to support his proposal.

The first opinion poll since Greeks voted showed anti- bailout party Syriza, which placed second in the election, would boost its showing if new elections were held.

Syriza party leader Alexis Tsipras failed to reach a deal with other leaders after giving them an ultimatum to renounce support for the EU-led rescue in order to enter the government. Samaras, whose party finished first, gave up trying to forge a coalition after six hours of talks on May 7.

Tsipras demanded that Samaras and Venizelos, the former finance minister, send a letter to the EU revoking their written pledges to implement austerity measures. Both rejected the request, with Samaras saying he was being asked “to put my signature to the destruction of Greece.”

Coalition Conditions

Kouvelis’s Democratic Left party criticized Syriza yesterday, saying Tsipras was pushing the country toward another election and that his insistence on canceling the bailout agreement “constitutes a break with the euro.”

Kouvelis said today that he won’t join a coalition made up only of New Democracy and Pasok. In comments broadcast on private television channel Skai TV he also said his party would not join forces with Syriza if a new election is called.

Tsipras is to meet Venizelos today at 7 p.m., according to an e-mailed statement from the Athens-based party.

The risk of Greece leaving the euro by the end of 2013 has risen to as high as 75 percent, Citigroup Inc. (C:US) said on May 7. More than half of investors predict a nation will exit this year as Greece’s election impasse threatens to push the debt crisis to new depths, according to the Bloomberg Global Poll.

‘Protective Mechanisms’

The euro area could handle Greece’s exit from the currency union because the risk of contagion has waned, German Finance Minister Wolfgang Schaeuble was quoted as saying in comments to the Rheinische Post newspaper.

“We have learned a lot in the last two years and built in protective mechanisms,” the Dusseldorf-based newspaper quoted Schaeuble as saying in an interview published today, when asked whether the euro area is girded for a Greek exit. “The risks of contagion for other countries of the euro zone have been reduced and the euro zone as a whole has become more resistant.”

The ASE general index fell 2.5 percent to 625.17 at 12:20 p.m. in Athens. Standard & Poor’s Index futures declined 0.4 while the Stoxx Europe 600 Index also lost 0.4 percent. The euro rose 0.1 percent to $1.2949.

“The euro area has so far failed to make meaningful progress on the banking sector, has not strengthened EU institutions materially and, particularly in the case of Greece, has made little progress on the fiscal position,” according to Laurence Boone, Bank of America Merrill Lynch Chief European Economist, in a note today.

Real Threat

“Therefore, the threat from Greece remains real and Greece exiting the euro area would likely have contagion effects that cannot easily be addressed in the current set-up,” according to the note. Greece will run out of cash by early July if partners decided to withhold their next aid payment.

The European Financial Stability Facility on May 9 confirmed that a 5.2 billion-euro tranche will be released by the end of June, with 4.2 billion euros disbursed yesterday. The remaining 1 billion euros will be released depending on Greece’s financing needs.

Under the terms of the bailout a new government will need to detail savings of 11 billion euros next month.

New Democracy and Pasok, the two parties that supported the international rescue in an interim government earlier this year, are two deputies short of the 151 seats needed for a majority in the 300-seat chamber. Syriza came second with 52 seats, and Pasok placed third with 41 seats. Five parties opposed to bailout policies are now in parliament.

Syriza Gains

Syriza would boost its showing if elections were held again, coming first, though short of an outright majority, according to a Marc poll on Athens-based Alpha TV yesterday.

Syriza would garner 23.8 percent support, compared with its May 6 election result of 16.8 percent, while both New Democracy and Pasok would lose support, according to the survey of 1,021 Greeks.

Stripping out undecided and invalid votes, Syriza would get 27.7 percent, winning 50 bonus seats to hold 128 in the chamber. The margin of error was 2.5 percentage points for the poll which was conducted on May 8 and May 9.

“A second round of elections entails significant risk for all parties, not just Pasok and New Democracy that could see their slim support diminishing further, but also for Syriza given that the ‘fear factor’ could undermine its support,” Wolfango Piccoli, an analyst at Eurasia Group in London, said in an e-mail.

Under Greece’s election system, the president can give each of the three top vote-winning parties a mandate to form a government that can last for as many as three days. If the process still fails to yield a coalition, the president must try to broker a government of national unity, the constitution says. If that fails, new elections are held.

-- With assistance from Tom Stoukas, Jonathan Stearns, Antonis Galanopoulos and Eleni Chrepa in Athens, Jana Randow, Zoe Schneeweiss and Boris Groendahl in Vienna. Editors: Kevin Costelloe, Andrew Davis

To contact the reporters on this story: Maria Petrakis in Athens at mpetrakis@bloomberg.net; Natalie Weeks in Athens at nweeks2@bloomberg.net; Marcus Bensasson in Athens at mbensasson@bloomberg.net

To contact the editors responsible for this story: Tim Quinson at tquinson@bloomberg.net; Jerrold Colten at jcolten@bloomberg.net


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