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Date Published:
May 8, 2012Full Text
Greece continued to be gripped by political turmoil Tuesday amid diminishing hopes that leading political parties can form a coalition government after Sunday's splintered election result, increasing the possibility that Greeks will be called back to the polls as early as next month.
Greek leftist leader Alexis Tsipras has taken center stage as he embarks on a bid to form a coalition government following his Syriza party's surprise second-place finish in Sunday's inconclusive election. Tsipras will try to win support from other leftist parties but without a sufficient majority his bid is expected to collapse, just as that of his conservative peer did a day earlier.
Greece's initial attempt to strike up a coalition government ended quickly Monday after conservative leader Antonis Samaras failed to reach a deal with rival lawmakers only six hours into the effort. He had three days to complete the task, under Greek law.
The inconclusive vote and ensuing coalition talks, combined with concerns about the emergence of a Socialist president in France who opposes German-led austerity measures for the euro zone, has revived speculation that Greece would leave the euro, stoking new worries about the fragility of Europe's monetary union.
Political turmoil in Greece continued to put pressure on bond prices from lower-rated euro-zone governments, pushing yields higher Tuesday. Yields on Italian 10-year bonds rose two basis points to 5.58%, according to Tradeweb.
Spanish 10-year yields were three basis points higher at 5.75%, with reports that Spain's government is planning to bail out ailing lender Bankia further hitting sentiment. The yield on the Greek bond due in 2023 was 22.89%, up nine basis points and pushing down the price of Greek government bonds to near 21% of their face value.
Time is running short. At stake is Greece's ability to implement next month agreed budget cuts and reforms it must take in order to secure continued financing from its European partners and the International Monetary Fund. Failure to do so could delay--and potentially imperil--further aid promised to Greece as part of a EUR130 billion bailout agreed only in March, rendering it unable to meet its obligations.
Syriza, which campaigned against the austerity policies championed by Greece's European partners, more than tripled its share of the vote in the last elections in 2009. In the process, Tsipras, an admirer of Venezuelan President Hugo Chavez, won a seat at the table in forming a new Greek government--something that seemed unlikely just a few days ago.
Tsipras led his party, the Coalition of the Radical Left, or Syriza, to second place in the polls on Sunday with 16.8% of the vote, just two percentage points behind the winning center-right New Democracy, relegating the once-powerful Socialist, or Pasok, party to third place. He was scheduled to meet with President Karolos Papoulias at 1100 GMT and will be tasked with forming a government, also with a three-day deadline.
Tsipras, who has sought to annul policies agreed under Greece's bailout and is favoring a debt-repayment moratorium, rejected teaming up with the conservatives, saying after meeting with Samaras Monday that he couldn't consent to austerity measures promised to the country's international creditors.
"We believe that the path of salvation doesn't pass through the barbarity of austerity measures," Tsipras told reporters Monday after rejecting Samaras' offer.
He said he will instead focus on striking up a deal with other left-wing peers, though officials from within his party believe that effort is unlikely to succeed.
"The basic principle for us is a leftist coalition government made up of parties that have not backed the austerity measures. This makes any relationship with Pasok and New Democracy very difficult," a senior Syriza official said.
That attempt is likely to fall flat with the Communist Party, which has ruled out cooperating with any other political party, openly advocating Greece's exit from the euro and a return to the drachma.
A cross-party deal with other parties is also unlikely because of lingering ideological, personal and historical differences separating the country's political leaders. The Syriza official said that even if Pasok and New Democracy agree to support a Syriza government without participating in the cabinet, such a government wouldn't be viable.
"It's going to be a schizophrenic coalition which will negotiate to change the austerity package while its two main allies have already signed for the package. It won't work," he said.
Tsipras instead may use his mandate to strike an alliance with other smaller fringe parties, with an eye to the next election expected in June, when he would hope to build on his momentum and win the vote.
If Tsipras wins the next election—or if his party increases its support, as many observers expect—it will be difficult for other leftist parties not to join him in a coalition, including the former ruling Socialist party, a chunk of whose former supporters voted for Syriza on Sunday.
Spiros Rizopoulos, a political communications strategist and chief executive of Spin Communications, says a second round of elections is inevitable, and would probably favor Syriza at the expense of the two mainstream parties.
"Tsipras will do better in a second round. He has momentum at a time when people are ready to listen to anything," said Rizopoulos. "If he is smart, he will start moving to the center. But politics is all about momentum and he has got the momentum."
Syriza expects its campaign to encounter mounting pressure on Greece as international creditors and the mainstream parties Pasok and New Democracy ramp up the rhetoric about the dangers facing the country if it doesn't stick to its commitments.
"We expect a climate of terror, that they won't give Greece more money, that banks will run out of money, that we'll be thrown out of the euro zone. It's going to be an effort to bring voters back to the mainstream parties. This is going to be the main challenge for Syriza in the next elections," the party official said.
The risk, however, of Greece running out of money amid protracted political uncertainty is real. Without further aid, Greece has enough money to make it through the end of July, according to a Greek government official.
Greece is due to receive a EUR5.2 billion aid tranche Thursday, which will mostly go towards a pending bond redemption. This payment is expected to be disbursed as planned, a European Union official said Tuesday. But the official said that further payments will depend on Greece's political developments.
Greece must also decide whether to repay a EUR450 million bond due May 15, which has been issued under foreign law and whose holders refused to participate in a recent debt restructuring. In the absence of a government, it's unclear who will make the call on whether to default on this bond. Greece's EUR200 billion debt restructuring doesn't foresee payments to holdouts.
The protracted political uncertainty will also complicate pending decisions on EUR11.5 billion in additional cutbacks the country must come up with by June to meet budget gaps in 2013 and 2014.
On Monday, officials from the EU and the International Monetary Fund warned that Greece must adhere strictly to the austerity program, signaling there was little room for a new government to renegotiate the bailout terms.
Amadeu Altafaj, the spokesman for EU Economics Commissioner Olli Rehn, said Greece's membership in the 17-member euro zone wasn't in question but that it does come with strings attached.
"This is the deal that is on the table," Altafaj said. "It is an unprecedented effort in terms of solidarity... Solidarity is a two-way street."