Greece’s New Democracy party will launch coalition talks Monday after placing first in a hard-fought election that pitted supporters of the German-inspired bailout and austerity programs against millions of voters who condemned them as economy killers.
The tense election gave the centre-right New Democracy party, which supports the international bailouts, the single biggest share of the vote – about 30 per cent. The result pleased European leaders who had feared that victory by Syriza, the radical left party opposed to the bailouts, would force Greece out of the euro zone, triggering financial and economic chaos throughout the continent.
On Sunday night in Athens, New Democracy leader Antonis Samaras called for a government of national economic salvation. “Today the Greek people expressed their desire to remain an integral part of Europe,” he told his supporters. “This is a victory a victory for all Europe. ... I am sure the sacrifices of the Greek people will bring the country back to prosperity.”
New Democracy, however, will face strong opposition from Syriza, which had vowed to shred, or greatly dilute, the austerity measures that it blames for plunging Greece into deep recession – to the point that the youth jobless rate has hit 50 per cent. Syriza took about 26 per cent of the vote, based on the results from half the polling stations late Sunday night, up from almost 17 per cent in the inconclusive May 7th election and less than 5 per cent in the 2009 election.
While he congratulated Mr. Samaras on his victory, Alexis Tsipras, the young, charismatic Syriza leader, vowed to fight the austerity programs that were demanded by the European Union and the International Monetary Fund in exchange for two bailouts, worth almost €300-billion ($390-billion), since 2009. “The bailout deal is not a viable plan and this is clear from the people’s vote,” he said.
While Syriza stated last night it would not join a pro-bailout coalition government, Mr. Tsipras’s anti-austerity message is resonating across Europe. In the May presidential election France, Socialist François Hollande sent the centre-right incumbent Nicolas Sarkozy packing by vowing to dilute austerity and balance it with growth measures aimed at creating jobs. Mr. Hollande had depicted Mr. Sarkozy as the lapdog of German Chancellor Angela Merkel, whose has made austerity-for-all the cornerstone of her save-Europe policy.
In Spain, conservative prime minister Mariano Rajoy has been pleading with the EU for less stringent budget-deficit targets. Spain is in a double-dip recession and his fear is that further spending cutbacks will send unemployment soaring again, inflicting more damage on the economy and the banks, which will soon receive €100-billion ($130-billion) in new capital from the EU’s bailout funds.
Investors and political leaders in Brussels and Berlin feared a Syriza victory, even though some of them acknowledged that the austerity measures – dominated by savage government spending cuts and tax increases – were damaging an already ailing economy. They hoped for a New Democracy victory because that party, plus its former and probable future coalition partner, the Socialist Pasok party, had vowed to keep Greece in the euro zone even if it meant inflicting pain on most Greek families.
In a statement released Sunday night, after the New Democracy victory, the EU’s finance ministers said that they are “convinced that continued fiscal and structural reforms are Greece’s best guarantee to overcome the current economic and social challenges and for a more prosperous future of Greece in the euro zone.”
Analysts said they expect the markets to rise Monday morning because the immediate threat of Greece reneging on its bailout commitments is gone. On Sunday night, the euro traded higher on the election results. “So far so good,” said Sebastien Galy, currency strategist with the French bank Société Générale SA.
The big caveat is that Greece, in spite of New Democracy’s strong showing, still lacks a stable government.
When Mr. Samaras begins coalition negotiations Monday morning, he will almost certainly be able to secure the support of third-place Pasok, giving him a comfortable majority in the 300-seat parliament. But the coalition will face a strong opposition in Syriza, which earned most of its support from young voters, half of whom are unemployed.
“I fear that unless Syriza is in government, the young people will take to the streets in protest because they would have nothing to lose,” one diplomat, who did not want to be identified, said before the election results were announced.
The new coalition government would have to buy peace with Syriza, and buy credibility with the majority of voters who endorsed parties other than New Democracy, by trying to blunt the sharpest edges of the austerity programs. Mr. Samaras has hinted he will try to get better terms on the bailout commitments, but anything beyond a few tweaks is bound to be resisted by Germany, the EU and the International Monetary Fund.
While the election results were welcomed by Greece’s international creditors, any new government will have virtually no chance of improving the economy, at least in the short- to medium-term. Greece is experiencing a slow-motion run on its banks as investors and wealthy Greeks yank their capital and deposits from the country, for fear the recession will deepen and is banks fail. The jobless rate continues to rise and tourism is down greatly.
“The better mood simply cannot last for long, given that this vote still leaves the Greek economy in crisis,” Mr. Galy said.