Greece will hold new elections after President Karolos Papoulias failed to broker a governing coalition following an inconclusive May 6 vote, raising concern it may exit the euro. The currency and euro-area stocks fell.
“The country is once again headed to elections in a few days under adverse conditions,” Evangelos Venizelos, the leader of the socialist Pasok party said. “The Greek people told us they didn’t want elections but a coalition government, that they want Greece in the euro.”
Venizelos spoke after he and other party leaders met Papoulias today in Athens. A second election in less than two months threatens to extend the political gridlock that has left the country without a government since the last vote.
Greece’s political impasse means elections will probably be held next month, with polls showing that could boost the anti-bailout Syriza party to the top spot. The country may run out of money by early July.
The standoff has reignited concern the country will renege on pledges to cut spending as required by the terms of its two bailouts worth 240 billion euros ($306 billion) negotiated since May 2010, and, ultimately, leave the euro area.
‘Exit the Euro’
“A second vote means Greece is edging closer to the point where it’s inevitable they have to exit the euro,” Fredrik Erixon, head of the European Centre for International Political Economy in Brussels, said in a phone interview. “No other course of events is now likely.”
German Finance Minister Wolfgang Schaeuble said Greece must elect a government that sticks to the terms of its international bailout in order to stay in the euro.
The announcement of new elections “doesn’t change the situation,” Schaeuble told reporters at a meeting of European Union finance ministers in Brussels today. “The program is agreed. We need a government that’s capable of making decisions.”
European stocks fell for a second day. Greece’s benchmark ASE Index dropped 3.6 percent to 562.88 at the close of trading in Athens, its lowest level since November 1992. The ASE has fallen 18 percent since the May 6 vote. The Stoxx Europe 600 Index lost 0.7 percent. The euro weakened 0.4 percent to $1.2769.
Greece is to repay 435 million euros of bonds falling due today, the Finance Ministry in Athens said in an e-mailed statement. Greece will pay the principal and interest on foreign law notes which weren’t tendered into the country’s debt restructuring.
President Calls Meeting
The Greek presidency called a meeting of political party leaders for 1 p.m. in Athens tomorrow to form a caretaker government to steer the country to elections. Under the Greek constitution, if the meeting tomorrow can’t agree on a caretaker government, a mandate to form a temporary government of the widest possible consensus will be given to the Council of State or Supreme Court with the sole remit of dissolving Parliament and holding elections.
Elections must be held within four weeks at the latest meaning the vote would probably be on June 10 or June 17.
Greece must be part of the euro area and it would be a “catastrophe” for the nation to revert to its own currency, a move that threatens a run on banks, former Greek Prime Minister Costas Simitis said.
“There’s no question we must belong to the euro zone,” Simitis, who led Greece when it joined the euro in 2001, said at a forum in Beijing today. “The idea of coming back to the drachma is an idea that cannot function.”
Austerity has ‘Failed’
Europe must reexamine its policy of austerity and acknowledge it has failed, Alexis Tsipras, who heads the anti-bailout Syriza party, said yesterday in an interview broadcast on state-run Athens News Agency’s website.
“We ask that our country remain in the euro without the catastrophic policy of austerity and we have the solidarity of Europe,” Tsipras said. “I can’t guarantee that the euro area itself and the euro will be united and exist.”
Opinion polls conducted since the elections suggest that Syriza would come in first in a rerun, though short of an outright majority. Syriza would have 20.5 percent of the vote if elections were held now, according to a survey of 1,002 people by Rass SA for the newspaper Eleftheros Typos yesterday, the fourth poll to show the party with such a lead.
That survey showed support for New Democracy, which placed first in the May 6 election, at 19.4 percent and Pasok dropping to 11.8 percent from 13.2 percent. More than eight in 10 said they wanted Greece to remain in the euro area. The poll was conducted on May 10 and May 11. No margin of error was given.
Change Bailout Terms
Antonis Samaras, leader of Greece’s New Democracy party, which came in first in the last vote, said today after the failed bid to form a government that the terms of Greece’s bailout must be changed.
The election left New Democracy and Pasok, the two parties that supported the international rescue in an interim government this year, two deputies short of the 151 seats needed for a majority in Parliament. Syriza came in second, its best showing ever and a fourfold increase in support from the 2009 elections. Five anti-bailout parties are now represented in parliament.
“It looks to me that not only are EU leaders underestimating the risk of early elections, but they are not focusing enough on the risk of an unfriendly second election outcome,” Martin Blum, co-head of asset management at Ithuba Capital in Vienna, said in an e-mail. “The flip side of this is that EU leaders are not focusing enough on measures to contain contagion.”
Treasury Bill Sale
Greece sold 1.3 billion euros of 13-week Treasury bills today with a uniform yield of 4.34 percent, according to the Athens-based Public Debt Management Agency. Investors bid for 2.32 times the securities offered, the agency said. The yield at the previous 13-week Treasury bill auction on April 17 was 4.2 percent.
The country will run out of cash by early July if partners decide to withhold their next aid payment. The European Financial Stability Facility on May 9 confirmed that a 5.2 billion-euro tranche will be released by the end of June, with 4.2 billion euros already disbursed May 10. 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 spell out next month how it will save 11 billion euros.