Greek Government Mandate Passes to Venizelos’s Pasok

Greece’s political turmoil entered its fourth day, with coalition talks deadlocked, raising the possibility that another election will have to be held as early as next month.

Evangelos Venizelos, the socialist Pasok leader and former finance minister, is trying to form a government after receiving a three-day mandate from President Karolos Papoulias today. Pasok yesterday rejected terms for a government set by Alexis Tsipras of anti-bailout Syriza party, which then gave up its bid to build a coalition.

“There is no time to lose,” Venizelos said in Athens yesterday on state-run NET television. “We can’t take any decisions that worsen the recession, increase unemployment or endanger the real economy. That means no new elections, no instability, no uncertainty: to remain in the euro.”

The standoff has reignited European concerns over Greece’s ability to hold to the terms of its two bailouts negotiated since May 2010. With Parliament split and policy makers in Berlin and Brussels urging Greece to stay the course, the country at the epicenter of the debt crisis is again facing the risk of an exit from the euro.

New Elections

Tsipras, whose party came second in the May 6 vote, failed to reach a deal with other leaders after giving them an ultimatum to renounce support for the European Union-led rescue in order to enter government. New Democracy leader Antonis Samaras, whose party came in first, gave up trying to forge a coalition after six hours of talks on May 7.

“New elections are the most likely possibility,” Spyros Economides, a senior lecturer at the London School of Economics, said in a telephone interview. “The coalition math from the May 6 vote just doesn’t add up.”

Tsipras demanded Samaras and Venizelos send a letter to the EU revoking their written pledges to implement austerity measures. Both Samaras and Venizelos rejected the request. Samaras said he was being asked “to put my signature to the destruction of Greece.”

European governments cannot force Greece to stay in the euro if Greek citizens decide to leave, German Finance Minister Wolfgang Schaeuble said.

Greek Exit

“They will decide whether to stay in the euro zone or not,” Schaeuble said at a conference sponsored by German broadcaster WDR in Brussels yesterday. “If Greece decides not to stay in the euro zone, we cannot force Greece.”

The repercussions of a Greek euro-exit are “potentially huge,” said Gillian Edgeworth, a London-based economist at UniCredit. “The chances of Spain needing official aid would increase, with implications for spillover to others.”

Rio Tinto Group (RIO), the third-biggest mining company, said any exit by Greece from the bloc would significantly destabilize the region’s economy and hurt global confidence.

“Clearly if Greece would leave the euro it would destabilize the European economy to a significant extent,” Jan du Plessis, chairman of London-based Rio Tinto (RIO), told reporters today in Brisbane. “It’s one of the things we keep an eye out on all the time.”

The risk of Greece leaving the euro by the end of 2013 has risen to as high as 75 percent, Citigroup Inc. (C) said May 7. More than 50 percent of investors predict a nation to exit this year as Greece’s election impasse threatens to push the debt crisis to new depths, according to the Bloomberg Global Poll.

Bailout Policies

Greece’s benchmark ASE Stock index rose 1.5 percent to 624.29 in Athens today at 10:12 a.m. Frankfurt time, after losing about 10 percent in the previous three days. Standard & Poor’s 500 Index futures expiring in June rose 0.3 percent, while the MSCI Asia Pacific Index was little changed. The Stoxx Europe 600 Index (SXXP) fell 0.3 percent and the euro was little changed at $1.2946.

New Democracy and Pasok, rivals until the country’s crisis made them pro-bailout partners in a national government last year, are two deputies short of the 151 seats needed for a majority in the 300-seat chamber. New Democracy won the election with 19 percent of the vote, gaining 108 seats, thanks to a rule that gives the first-place party 50 extra seats.

Syriza came second with 17 percent, winning 52 seats, and Pasok placed third with 13 percent, or 41 seats. Five parties opposed to bailout policies are now represented in parliament.

End to ‘Charade’

The Communist Party of Greece, which opposes the country’s membership in the EU and has refused to join any coalition government and called for fresh elections to put an end to the “charade” of the parties trying to form a government.

Under Greece’s election system, the president can give each of the three top vote-winning parties a mandate to form a government that can last for as many as three days. If the process still fails to yield a coalition, the president must try to broker a government of national unity, the constitution says. If that fails, new elections are held.

Tsipras had said he aimed to link up with parties in a government that would nationalize banks, place a moratorium on debt payments and cancel the bailout and measures such as labor reforms and pension cuts.

Samaras said that his party is prepared to support a minority government as long as it ensures Greece’s membership in the euro and its national interests.

Merkel Remarks

Venizelos said Pasok’s proposal for a national unity government with all parties with a pro-European orientation was the only solution. Greece must remain “safely” within the euro while pursuing changes to the bailout accord to boost growth, he said.

International creditors called on Greek leaders to hold to the agreed terms of their EU-International Monetary Fund bailouts.

Chancellor Angela Merkel said growth in the euro area must be spurred through “structural reform” rather than debt-funded stimulus programs.

“To say this unequivocally: growth through structural reform is sensible, important and necessary,” Merkel told lawmakers in Berlin today. “Growth funded by debt -- that will just lead us back to the beginning of the crisis. We can’t do that and we won’t do that.”

For now, bailout money is still flowing to Greece. The European Financial Stability Facility yesterday confirmed that a 5.2 billion-euro ($6.7 billion) tranche will be released by the end of June, with 4.2 billion euros disbursed today. The remaining 1 billion euros will be released depending on Greece’s financing needs.

Under the terms of the bailout a new government will need to detail savings of 11 billion euros next month. Greece doesn’t need any more aid until July, German Deputy Foreign Minister Michael Link said during a parliamentary hearing in Berlin yesterday.

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

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

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