Snap Election Risks Greek Lifeline; Nation's Stocks and Bonds Plunge on Government Defeat
By Eleni Chrepa and Paul Tugwell
Greece faces snap elections next month that risk severing the international lifeline that has supported the country since it sparked Europe’s sovereign debt crisis in 2010.
Prime Minister Antonis Samaras said in a live broadcast in Athens today that he will recommend parliamentary elections are held on Jan. 25, almost 18 months before his coalition’s term was due to end. Samaras spoke after he failed in his third attempt to persuade lawmakers to back his candidate for head of state, forcing the legislature’s dissolution.
“The government did everything possible to get a new president elected and a minority of MPs now drags the country to early elections,” Samaras said in remarks broadcast on state-run Nerit TV. “I will do everything to guarantee that the country stays on the path of reforms.”
Stocks and bonds plunged in Athens after the government defeat, recalling the height of the Greek financial crisis in 2012, with investors concerned a victory by the opposition Syriza party would jeopardize the terms of Greece’s rescue struck with international creditors. Syriza, which opposes austerity measures imposed in return for the outside aid, leads Samaras’s New Democracy movement in opinion polls.
Fear vs Anger
“These elections will be a struggle between fear for euro exit and anger against austerity,” George Pagoulatos, professor of European politics and economy at the Athens University of Economics and Business, said by phone. “The government will be emphasizing the risks associated with Syriza’s anti-bailout stance and Syriza will try to convince voters that it can offer a viable alternative, without endangering the country’s euro membership.”
The trigger for the elections was the failure at the third and final attempt of Samaras’s bid to push through his nominee for president, Stavros Dimas. Dimas attracted the support of 168 lawmakers in the 300-seat chamber, short of the 180 votes required. Under the constitution, the legislature must now be dissolved and a date for elections set. Samaras said he’ll meet tomorrow with the incumbent president, Karolos Papoulias, and ask for the election to be held on Jan. 25. That’s just weeks before Greece’s 240 billion-euro ($293 billion) bailout expires.
The International Monetary Fund, one pillar of the so-called troika of international creditors that includes the European Commission and the European Central Bank, said in an e-mailed statement that Greece faces “no immediate financing needs.”
Yields Jump
The yield on the 10-year Greek bond jumped after the result of the vote was announced in parliament, and was up 132 basis points to 9.8 percent as of 5:12 p.m. in Athens. The benchmark Athens Stock Exchange dropped 4 percent after falling more than 11 percent earlier in the day, the biggest slump among 18 western-European markets.
The impact on other euro-area nations scarred by the debt crisis was more subdued. Ten-year Portuguese yields rose 4 basis points to 2.73 percent, while equivalent Spanish debt edged up 1 basis point to 1.68 percent. Italian 10-year yields gained 6 basis points to 2 percent.
“I feel I can exclude completely a contagion effect between Italy and Greece,” Italian Prime Minister Matteo Renzi said at a news conference in Rome today.
Samaras, who failed to gather enough support for Dimas in two previous rounds of voting, on Dec. 17 and Dec. 23, called on lawmakers before today’s session to avert snap elections that he said posed a danger to the country. Heading a coalition of 155 lawmakers, he’d offered to form a broader administration and hold early parliamentary elections at the end of 2015 if lawmakers backed his nominee.
‘Historic Day’
Syriza leader Alexis Tsipras, hailing a “historic day” for democracy, told reporters that the Greek people were determined to put an end to austerity, and that in a few days the bailout memorandum and its policies would be confined to the past.
Syriza pledges to annul the bailout agreement and vows to renegotiate repayment terms on loans from euro member states and on Greek bonds held by the ECB. It does not advocate an exit from the euro area.
“Syriza’s program includes blackmailing the European Union by not paying the debt Greece owes to European countries,” Nicholas Economides, an economics professor at New York University’s Stern Business School, said in an e-mail. “It also includes significant increases in salaries, pensions, and the number of civil servants. None of these actions are feasible with Greece in the euro zone.”
Recovery Signs
The election comes as Greece’s economy shows signs of recovery, exiting in the second quarter a six-year recession that cost the country about a quarter of its gross domestic product and tripled the unemployment rate.
The ECB referred in a statement to the “impressive progress” made by Greece in recent years in stabilizing public finances and reforming its economy.
“It’s now for the Greek electorate to decide about the future composition of the parliament and the government,” the central bank said in an e-mailed statement. We will not interfere in or comment on this democratic process.’’
Pierre Moscovici, EU commissioner for economic and financial affairs, was more explicit.
“A strong commitment to Europe and broad support among the Greek voters and political leaders for the necessary growth-friendly reform process will be essential for Greece to thrive again within the euro area,” he said.