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Papademos Says May 6 Vote Crucial for Greek Euro Future

Greek Prime Minister Lucas Papademos
Greek Prime Minister Lucas Papademos urged Greeks to choose the path that secures their role in the European Union and its single-currency zone when they vote in elections May 6. Photographer: Kostas Tsironis/Bloomberg

Greek Prime Minister Lucas Papademos urged Greeks to choose the path that secures their role in the European Union and its single-currency zone when they vote in elections May 6.

“I am certain that as a society we will invest in creativity, and not the opposite,” Papademos said in a statement to the nation yesterday, televised on state-run NET TV, after he asked for parliament to be dissolved and elections held. “That means choosing the path that will ensure our place in the European Union and the euro.”

Papademos, who was appointed in November to obtain a second rescue package for Greece, announced yesterday the start of an electoral race that may jeopardize austerity policies on which 130 billion euros ($170 billion) of bailout funds depend. The vote will be held almost two years to the day after Greece became the first euro country to call for outside aid at the start of Europe’s debt crisis.

The former vice president of the European Central Bank is standing aside for a vote that polls suggest will deny a working majority to either of the two main party leaders, Antonis Samaras of New Democracy or Pasok’s Evangelos Venizelos, both parties that supported Papademos’s caretaker government. That risks a period of political instability, threatening Greece’s future in the 17-member euro area.

Parliamentary Instability

New Democracy, ahead in the polls, lacks the support to govern alone, and even teaming up with Pasok may not provide Samaras, 60, with the parliamentary backing needed to push through budget measures opposed by most Greeks. Samaras, a former foreign minister, has said he may demand another election if he doesn’t get the support he needs.

The economic turmoil is taking its toll on the main parties, which have alternated in power in Greece for the past three decades.

More than half of young Greeks are out of work, pensions and wages are being lowered and unemployment was at a record 20.7 percent in the fourth quarter.

Support for Pasok and New Democracy fell to 14.5 percent and 19 percent respectively, from 15.5 and 22.5 percent in March, according to a poll conducted by Public Issue SA for Skai TV and released yesterday. New, small parties gained in popularity. Independent Greeks, which is taking voters from New Democracy, added 2.5 percentage points to 11 percent. No details on how many people were surveyed or the margin of error were available.

As many as eight parties may win seats in the 300-member legislature as voter support splinters amid a fifth year of economic contraction.

‘Significant Challenges’

“Greek policy-making is facing significant challenges ahead,” Lefteris Farmakis and Dimitris Drakopoulos, economists at Nomura International Plc, wrote in an April 2 note. “Political stability is an essential condition for any form of progress on these fronts.”

The next government will need to outline spending cuts of about 12 billion euros for 2013 and 2014 and vote on a new medium-term plan for the 2013-to-2016 period in June, Papademos said yesterday. That’s on top of the austerity measures his government announced to secure additional funds from the EU and International Monetary Fund. They already total 20.6 billion euros, or 10 percent of gross domestic product this year, according to the Bank of Greece.

Political Risks

Standard & Poor’s cited weakening political consensus last month along with questionable growth prospects and a “still large” debt burden as it gave a CCC rating, its fourth rank above default, to Greek securities issued as part of the country’s debt restructuring.

Political risks contribute to making the nation “accident prone,” the IMF said in a March 16 report. “Greece has little if any margin to absorb adverse shocks or program slippages.”

Greece set off Europe’s sovereign debt crisis in October 2009, when then-Prime Minister George Papandreou revealed that the deficit was twice what the previous government had reported, and four times the limit for states using the euro. Greece received a bailout of 110 billion euros in May 2010.

Papandreou was forced out in November after calling a snap referendum on austerity measures to which he had committed days earlier, prompting German Chancellor Angela Merkel and French President Nicolas Sarkozy to say the ballot would be a vote on Greece’s membership of the euro. Papademos was appointed head of a caretaker government and the referendum plan was scrapped.

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