A Greek caretaker government will prepare new elections probably on June 17 that are shaping up as a ballot on whether the country should remain a euro member.
“Greeks are faced with two choices in this election,” Antonis Samaras, leader of the New Democracy party, said in a statement on state-run NET TV. “We can change everything in Greece, together with a Europe that is changing. Or we can live through the horror and isolation of a euro exit and the collapse of all that we have built.”
The new vote follows inconclusive May 6 elections that pushed a political party opposed to Greece’s international bailout into second place, raising the specter of Greece leaving the euro. Public opinion polls say that the party, Syriza, may come in first next time, complicating Greece’s efforts to avoid running out of cash by early July. Samaras’s New Democracy party came first in the May 6 election, short of an outright majority.
President Karolos Papoulias failed in a bid to broker a governing coalition in meetings yesterday with party leaders in Athens.
Panagiotis Pikrammenos, head of Greece’s Council of State, the highest administrative court, will be sworn in as head of the caretaker administration later today, according to a statement from the president’s office. The formal announcement of the election date will be made after the new parliament is sworn in tomorrow and then dissolved.
“I have read that due to my name I am the most appropriate prime minister,” Pikrammenos, whose name means “bitter” in Greek, told Papoulias today as he accepted the mandate to form the short-term government. “It is a great joy and also a great burden.”
The political standoff since May 6 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 17-nation euro area.
German Finance Minister Wolfgang Schaeuble said the Greek people and the nation’s future government would have to decide whether they’re prepared to accept the bailout conditions.
‘No Easy Ways’
“There are no easy ways to solve Greece’s problems,” Schaeuble said in a Deutschlandfunk radio interview today. “If Greece wants to stay in the euro -- and that’s something that we all wish for -- then that’s the way it has to be. But that requires that Greece has a functioning government that is prepared to go this way.”
Greece’s benchmark ASE Index fell 1.3 percent to 555.42 at the close of trading in Athens, its lowest level since 1990. The Stoxx Europe 600 Index rose 0.1 percent. The euro gained 0.1 percent to $1.2748.
National Bank of Greece SA plunged 13 percent, the biggest one-day drop since November, leading declines among Greek banks as deposit outflows were rekindled by the political instability.
Central bank head George Provopoulos told Papoulias that Greeks have withdrawn as much as 700 million euros and the situation could worsen, according to the transcript of the president’s meeting with party leaders on May 14 that was published yesterday.
Bank Run Risk
The risk of a run on Greek banks is “a very serious problem,” Yannis Ioannides, professor of economics at Tufts University in Massachusetts, told Bloomberg Television. He said the European Central Bank needs to guarantee deposits held by the region’s lenders to guard against contagion. “That’s the only way to kill a bank run: not words but deeds.”
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, which advocates canceling the bailout and nationalizing banks, came second, and resisted pressure to join a coalition government.
Syriza leader Alexis Tsipras said he demanded the caretaker prime minister freeze the implementation of wage and pension cuts and other austerity measures until elections are held and a new government is formed. He also called for all state asset sales to be immediately frozen.
Greece’s state asset sales fund won’t make any binding decisions until a new government has been set up after the vote, according to an e-mailed statement from the Hellenic Republic Asset Development Fund today.
Tsipras has said Europe must reexamine its policy of austerity and acknowledge it has failed.
“We ask that our country remain in the euro without the catastrophic policy of austerity and we have the solidarity of Europe,” Tsipras said on May 14. “I can’t guarantee that the euro area itself and the euro will be united and exist.”
Syriza Tops Polls
Opinion polls conducted since the last election 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 May 14, 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.
“The days between now and the new elections, which unfortunately, we were unable to avoid, are days of responsibility,” Evangelos Venizelos, the head of the socialist Pasok party, said today. “Responsibility because Greece must be kept upright. The situation for Greeks can’t worsen and this isn’t easy or simple.”
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.