Greek election gridlock raises risk for bailout, euro future

May 7 (Bloomberg) -- New Democracy leader Antonis Samaras began trying to put together a government after a Greek election that raised fresh questions about the country’s euro membership and triggered the biggest stock-market rout in four years.

Samaras was given three days from today to put together a coalition from an assembly split down the middle on whether to renege on the terms of bailout agreements negotiated since May 2010. New Democracy and the socialist Pasok party, rivals until the country’s crisis threw them into a national government together this year, are two seats short of the 151 seats needed for a parliamentary majority.

“We respect the will of the Greek people,” Samaras told President Karolos Papoulias in Athens today as he formally received the mandate. He said exploratory talks to form a government would begin immediately. His first meeting is with Alexis Tsipras, the head of Syriza, which came in second place.

New Democracy led in the election, receiving 19 percent of the vote and 108 seats in the 300-seat Parliament. Syriza got 17 percent to score 52 seats; Pasok came third with 13 percent and 41 seats.

As voters across Europe rebel against austerity measures imposed to stamp out the debt crisis, Citigroup Inc. said today that the risk of Greece leaving the euro by the end of 2013 has risen as high as 75 percent. Yesterday’s election propelled into parliament one party that wants to put land mines on the border with Turkey to stop illegal immigrants and another that wants Germany, the country’s biggest donor, to pay World War II reparations. The benchmark ASE Stock index plunged 6.3 percent at 3:40 p.m. in Athens.

‘Leave the Euro’

“The risk is huge that Greece will not have in the near future a government ready and able to fully continue the current adjustment program,” Holger Schmieding, chief economist at Berenberg Bank in London, said in an e-mailed note. “The Greek result adds to the risk that Europe could turn off the flow of support funds and thus force Greece to leave the euro.”

Samaras may focus his advances on the Democratic Left, which won 19 seats in the parliament and rejects austerity measures yet is in favour of remaining in the euro. For now Democratic Left has indicated it doesn’t want to join a government with New Democracy and Pasok. He will meet with Fotis Kouvelis, the head of the leftist party, later today, after meetings with Pasok leader and former Finance Minister Evangelos Venizelos.

Cancel the Bailout

Independent Greeks leader Panos Kammenos declined to meet with Samaras, NET TV reported, without saying where it got the information. Kammenos’s party secured 33 seats in the parliament.

Should Samaras fail to get the necessary number of seats, the onus on forming a government will fall to bailout opponent Syriza, a coalition of left parties, which has vowed to cancel the bailout terms. After that, Pasok takes the baton.

If the nine-day process fails to yield a coalition, President Papoulias may then try to broker a government of national unity. Should that process fail, new elections may be a possibility.

Even if a new government is formed, it may not survive for long, said Spyros Economides, a senior lecturer at the London School of Economics.

“How long will they be able to cohabit?” Economides said in a phone interview. “The question is, if you’re a supporter of the pro-European line, can you get the sticky-tape out and hold them together for six months or are you going to have a second election before the summer?”

Euro falls

Greece’s ASE Stock Index dropped as much as 8.3 percent to 632.77 points, close to the 20-year low of 626 hit in January. Shares of Alpha Bank SA fell as much as 20 percent. National Bank of Greece SA, the nation’s largest lender, dropped more than 14 percent. The euro also fell as French socialist Francois Hollande defeated Nicolas Sarkozy in the country’s presidential election yesterday. The single currency dropped 0.4 percent to $1.3030.

With anti-bailout rhetoric benefiting parties as diverse as Golden Dawn, which wants land mines along Greece’s borders to halt immigrants, and Independent Greeks, which wants Germany to pay compensation for World War II war crimes, Pasok and New Democracy’s coalition partners are limited. Democratic Left might be convinced to join because of its more clearly European orientation, said Lefteris Farmakis, a strategist at Nomura International Plc in London.

“It’s the only realistic coalition partner,” he said.

Page 1 of 2 >>

Copyright 2014 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

comments powered by Disqus
Check out Futures Magazine - Polls on LockerDome on LockerDome