Bloomberg News

Greek Government Mandate Passes to Venizelos’s Pasok

May 10, 2012

Evangelos Venizelos, Greece's former finance minister. Photographer: Simon Dawson/Bloomberg

Evangelos Venizelos, Greece's former finance minister. Photographer: Simon Dawson/Bloomberg

Greece’s Evangelos Venizelos, the socialist Pasok leader and former finance minister, said he saw the first “good omen” in four days of attempts to form a coalition government that would avert a new election.

He spoke after Democratic Left leader Fotis Kouvelis outlined a proposal for a unity government that will work to keep the country in the euro and the European Union while negotiating a gradual “disengagement” from bailout austerity measures.

“Our views are very close,” Venizelos said to reporters in Athens after meeting with Kouvelis.

Greek political turmoil is in its fourth day after the inconclusive May 6 elections raised the possibility that another election will have to be held as early as next month. The standoff has reignited European concerns over Greece’s ability to hold to terms of its two bailouts negotiated since May 2010.

Kouvelis said the unity government would last until elections in 2014 and called on all parties to support his proposal. Venizelos, who received the mandate to form a government today, will meet with other party leaders tomorrow to discuss the plan.

With Parliament split and policy makers in Berlin and Brussels urging Greece to stay the course, the country at the epicenter of the debt crisis is again facing the risk of an exit from the euro.

Ultimatum

Syriza party leader Alexis Tsipras, whose party came second, 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 government. New Democracy leader Antonis Samaras, whose party came in first, gave up trying to forge a coalition after six hours of talks on May 7.

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

Kouvelis’s Democratic Left party, which has 19 seats in Parliament, criticized Syriza, saying Tsipras was pushing the country toward another election.

Two Seats Short

New Democracy and Pasok 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.

The Democratic Left wants a “realistic approach to the gradual disengagement from the bailout through tough talks with our lenders” and a “commitment to the country remaining in the euro,” according to a party statement today.

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 50 percent of investors predict a nation to exit this year as Greece’s election impasse threatens to push the debt crisis to new depths, according to the Bloomberg Global Poll.

European governments cannot force Greece to stay in the euro if Greek citizens decide to leave, German Finance Minister Wolfgang Schaeuble said.

Euro Decision

“They will decide whether to stay in the euro zone or not,” Schaeuble said at a conference sponsored by German broadcaster WDR in Brussels yesterday. “If Greece decides not to stay in the euro zone, we cannot force Greece.”

Chancellor Angela Merkel, speaking today in Parliament in Berlin, said growth in the euro area must be spurred through “structural reform” rather than debt-funded stimulus programs.

The Standard & Poor’s 500 Index (SPX) rose 0.6 percent to 1,363.24 at 12:58 p.m. New York time. The Dow Jones Industrial Average added 69.59 points, or 0.5 percent, to 12,904.65. The euro rose from a three-month low against the dollar to $1.2959 at 11:30 a.m. New York time after falling to $1.2912 yesterday, the weakest level since Jan. 23.

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.

‘Risk’

“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 a note.

An opinion poll showed Syriza would boost its showing if elections were held again.

Syriza garnered 23.8 percent support, compared with its May 6 election result of 16.8 percent, according to the Marc poll broadcast on Athens-based Alpha TV today. New Democracy, which was first with 18.9 percent in the vote, would receive 17.4 percent and Pasok, which came third in the May 6 vote with 13.2 percent, would have 10.8 percent, according to the survey of 1,021 Greeks. No margin of error was given for the poll which was conducted on May 8 and May 9.

For now, bailout money is still flowing to Greece. The European Financial Stability Facility yesterday confirmed that a 5.2 billion-euro tranche will be released by the end of June, with 4.2 billion euros disbursed today. 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. Greece doesn’t need any more aid until July, German Deputy Foreign Minister Michael Link said during a parliamentary hearing in Berlin yesterday.

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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