George Papandreou is the last man standing among the euro-area leaders who needed a handout after Jose Socrates’s defeat in Portuguese elections yesterday.
For Papandreou and the investors and taxpayers who will share the cost of a beefed-up bailout for Greece, questions are increasing about whether he will complete a term that runs until 2013 and enact the budget reductions and asset sales that his benefactors demand.
The Greek premier, who has won assurances that international lenders will make the next payment of last year’s 110 billion-euro ($161 billion) rescue, will aim to quell growing dissent this week within his Socialist party -- known as Pasok -- over deeper austerity measures as voters’ patience wears thin and public protests mount.
“The coming week may well test the seams of Pasok in parliament and could prove a challenge too much for Papandreou,” said Jens Bastian, a visiting economist at St. Antony’s College, Oxford University in England. “It is a make or break situation for his leadership of the party and the government.”
So far, the Minnesota-born Papandreou, 58, has avoided the fate of Socrates and Ireland’s Brian Cowen, who was ejected Feb. 26. In Spain, Jose Luis Rodriguez Zapatero has announced he won’t seek re-election after imposing record-setting austerity measures to avoid reaching for a lifeline.
Socrates was defeated yesterday by Pedro Passos Coelho, leader of the Social Democrats, the party that helped bring down the government by voting against Socrates’s cost-cutting plan in March. Cowen was ousted in Ireland by Fine Gael headed by Enda Kenny, who has been lobbying for more favorable bailout terms since becoming prime minister.
A year after the rescue that aimed to stop the spread of the debt crisis, Greece is in a third year of recession, shut out of the financial markets and saddled with the biggest debt load in the euro’s history. Ireland and Portugal followed in seeking bailouts and Greece now needs a second rescue package to avoid the euro area’s first sovereign default.
Under the original rescue, Greece was due to sell 27 billion euros of bonds next year. EU leaders and Papandreou have acknowledged that a return to markets won’t be possible with Greece’s 10-year notes yielding 16 percent, more than twice the level at the time of the bailout. The EU is looking to close that funding gap through new loans and bondholders’ willingness to roll over Greek debt, EU officials have said.
Papandreou agreed to 78 billion euros in additional austerity measures and asset sales through 2015 to secure the 12 billion-euro bailout payment in July and meet conditions for receiving an additional rescue package. He agreed to make “significant” cuts in public-sector employment and establish an agency to manage accelerated asset sales, according to a statement released in Athens on June 3.
“Even if he gets the medium-term economic plan through parliament, the political turmoil is likely to continue as a second bailout will also require a parliamentary vote,” said Wolfango Piccoli, a London-based analyst at the Eurasia Group, which monitors political risk. Piccoli said he expected Papandreou to clinch a vote on the fiscal plan as “a no-vote would be suicidal for both Greece and the ruling party.”
Greek bonds gained June 3 on the prospect of a new aid plan, with the yield on two-year notes falling 172 basis points to 22.8 percent, the lowest since April 20. The agreements came at the end of a week when Greece’s fiscal crisis worsened enough for Moody’s Investors Service to raise the probability of a default to 50 percent. Today the yield fell 38 basis points to 22.5 percent.
Even as polls show most Greeks supporting plans to sell state assets and cut government jobs, they also indicate growing dissatisfaction with moves that will hurt incomes further. Papandreou’s lead in polls has dissipated in the past few months and almost nine in 10 expect conditions to worsen.
Underscoring concerns among European leaders about political instability, European Economic and Monetary Affairs Commissioner Olli Rehn said June 3 that Greece’s political parties across the spectrum must join together “for the sake of the country.”
Demonstrations modeled on the Spanish “Idignants” protests have drawn crowds to the central Syntagma Square in Athens each night since May 25. Shouting “thieves, thieves” at the Parliament building and banging pots and pans, protesters have set up camp in the square and hold ”popular assemblies” every evening. One group is collecting signatures for an anti- government referendum.
At least 50,000 people gathered last night, the police estimated, the largest turnout to date. That compares with the 1,500 people who responded to a call by the country’s two biggest unions to rally on June 4.
“The current wave of protests across Greece isn’t like the familiar anarchic ones,” said Alastair Newton, senior political analyst at Nomura International Plc in London. “They look and feel more like Argentina a decade ago. That does not bode well for the political establishment as a whole.”
Argentina’s then-President Fernando de la Rua quit in December 2001 amid riots over that country’s financial crisis, ushering in years of political instability.
Government spokesman George Petalotis condemned on June 2 a demonstration against Greek and European lawmakers on the island of Corfu. He himself was jeered and besieged that night by protesters at a party event at a retirement home in the suburbs of Athens.
Papandreou, who has 156 seats in the 300-seat Parliament, has a Cabinet meeting scheduled for today and plans to meet with party officials and lawmakers to fine-tune the fiscal measures before they are submitted to parliament. Sixteen of his Pasok colleagues have sent him a letter requesting a full discussion of the measures.
Papandreou “has bought time at the European level, but must now reach consensus at home,” Bastian said.
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