Greek Pro-Bailout Leaders Told by Syriza to Revoke Aid Pledges

May 8 (Bloomberg) -- David Blanchflower, a professor at Dartmouth College and a Bloomberg Television contributing editor, talks about elections in the euro zone last weekend and the prospects of Greece defaulting on its debt. Blanchflower speaks with Betty Liu on Bloomberg Television "In The Loop." (Source: Bloomberg)

Greece’s Syriza party leader Alexis Tsipras, charged with forming a government, told his pro-bailout counterparts they must renounce support for the European Union- led rescue if there is to be any chance of forging a coalition.

Tsipras said he expected Antonis Samaras of New Democracy and Evangelos Venizelos, the former finance minister who leads the Pasok party, to send a letter to the EU revoking their pledges to implement austerity measures by the time he meets with them tomorrow to discuss forming a coalition. Samaras said he would not do so, and would support a minority government if necessary.

“The bailout parties no longer have a majority in parliament to vote for measures that plunder the country,” Tsipras told reporters in Athens today after receiving the coalition-building mandate from President Karolos Papoulias. “There will be no 11 billion euros ($14 billion) of additional austerity measures; 150,000 jobs will not be cut.”

Political wrangling after the inconclusive May 6 election has reignited European concerns over Greece’s ability to hold to the terms of a second, 130 billion-euro rescue. Parliament is split down the middle on the two bailout deals negotiated since May 2010, as the country at the epicenter of the debt crisis again risks exit from the euro.

Greek stocks sank to their lowest level in about two decades amid the political instability. The benchmark ASE Stock index fell 3.6 percent to 620.54 at the close in Athens, its lowest since November 1992. The Stoxx Europe 600 Index slid 1.4 percent. The euro was down 0.5 percent to $1.2991.

‘Government of Reason’

“We call on the authorities in Greece to quickly move toward stability so that a government of reason can be formed,” German Foreign Minister Guido Westerwelle told reporters in Berlin today, saying that he viewed developments in Greece “with great concern.”

“It’s important for us that the steps that have been agreed upon with the government be implemented,” Westerwelle said. “They are not up for negotiation.”

New Democracy and Pasok, rivals until the country’s crisis made them partners in a national government last year, are two deputies short of the 151 seats needed for a majority in the 300-seat chamber. Samaras gave up his bid to forge a government after almost six hours of talks in Athens yesterday. The risk of Greece leaving the euro by the end of 2013 has risen to as high as 75 percent, Citigroup Inc. said the same day.

New Democracy won the election with 19 percent of the vote, gaining 108 seats; Syriza came second with 17 percent, winning 52 seats; and Pasok placed third with 13 percent, or 41 seats.

‘National Salvation’

Tsipras said he aimed to form a government with parties that would nationalize banks, place a moratorium on debt payments and cancel the bailout and measures such as labor reforms and pension cuts. The message from the electorate was clear, he said.

“Pasok and New Democracy should stop asking, in the name of national salvation, for a government that will implement the memorandum and loan accord,” Tsipras said. “This will not be a national salvation government but a salvation government for the bailout. That doesn’t interest us.”

Greece meanwhile raised 1.3 billion euros from the sale of 26-week Treasury bills today, with a uniform yield of 4.69 percent, compared with 4.55 percent at the previous auction on April 10, according to the Athens-based Public Debt Management Agency. Investors bid for 2.6 times the securities offered.

Coalition Talks

Tsipras met today with the leader of Democratic Left, which won 19 seats in Parliament and rejects austerity measures. He was also due to meet with representatives of the Ecologist Greens party, which didn’t win parliamentary representation, and with Louka Katseli, a former labor minister in the Pasok government.

As well as talks with Samaras and Venizelos tomorrow, Tsipras will meet with representatives of social, labor, health and education sectors, according to an e-mailed statement from his Athens-based party. He’s also due to see the head of Independent Greeks, Panos Kammenos, who has 33 seats.

If Tsipras fails to build a working majority, the onus on forming a government will pass to Pasok. Each mandate can last for three days. If the process still fails to yield a coalition, President Papoulias must try to broker a government of national unity, the constitution says. If that fails, new elections will be held.

“A Greek return to the polls in mid-June looks increasingly likely,” Malcolm Barr, an economist at JPMorgan Chase & Co, wrote in a note. “There is little doubt that the drop in support for New Democracy, Pasok has raised the probability of an eventual euro exit.”

To contact the reporters on this story: Maria Petrakis in Athens at mpetrakis@bloomberg.net; Natalie Weeks in Athens at nweeks2@bloomberg.net.

To contact the editor responsible for this story: Tim Quinson at tquinson@bloomberg.net; Jerrold Colten at jcolten@bloomberg.net

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.