Greece Heads to Elections With Euro, Bailout at Stake

Greece Heads to Election With Euro Membership, Bailout at Stake
Pedestrians and motorists pass the headquarters of Alpha Bank AE in Athens. Photographer: Simon Dawson/Bloomberg

The leaders of Greece’s two biggest parties clashed over how the country could stay in the euro, underscoring the political deadlock that triggered the decision to hold a second national vote in six weeks.

The conflict between Syriza leader Alexis Tsipras, who opposes the austerity demanded by the European Union bailout, and Antonis Samaras, leader of New Democracy, points to the June 17 vote as a referendum on Greece staying in the 17-nation currency bloc.

“Nobody knows exactly what will be unleashed when Greece does default and exit,” Megan Greene, an economist at Roubini Global Economics LLC said on Bloomberg TV today. “We’re already seeing deposits flee from Greece. When Greece does exit, we’ll see bank runs in Portugal and Spain, and I think that the ECB is poised to step in and try to plug that gap.”

The new vote follows inconclusive elections on May 6 that propelled Syriza into second place. Opinion polls say Syriza may come in first next time, complicating Greece’s efforts to avoid running out of cash by early July.

“Greece’s membership of the euro is not endangered by Syriza,” Tsipras said in a speech to his party’s lawmakers carried live on state-run NET TV. “It is endangered by the bankrupt policies of the bailout.”

The political standoff has reignited concern the country will renege on pledges to cut spending as required by the two separate rescue packages worth 240 billion euros ($306 billion). That could lead to funding being cut off and Greece ultimately leaving the euro area.

Battle Beginning

“The battle that is beginning, the elections, isn’t about any one party,” Antonis Samaras, leader of New Democracy, told his lawmakers. “It is about whether Greece will remain in Europe, a Europe that is changing, or whether Greece will be forced to leave Europe, losing much and risking much more.”

Greece’s benchmark ASE Index fell 2.6 percent to 541.2 at 3:32 p.m. in Athens trading, its lowest level since 1990. European stocks dropped for a fourth day, with the Stoxx Europe 600 Index slipping 1.1 percent to 241.7.

The euro fell 0.4 percent to $1.2689 at 1:10 p.m. in London.

National Bank of Greece SA tumbled 2.5 percent today, extending a 13 percent slide yesterday after the country’s central bank chief said citizens had withdrawn as much as 700 million euros ($891 million) from Greek banks.

Bank Runs

The May 6 election left New Democracy and Pasok, the two parties that supported the international rescue as part of an interim government this year, two deputies short of the 151 seats needed for a majority in Parliament. Samaras’s New Democracy came first in the election, though fell short of an outright majority.

President Karolos Papoulias failed in a bid to broker a governing coalition in meetings May 15 with party leaders in Athens. Panagiotis Pikrammenos, head of Greece’s Council of State, the highest administrative court, was sworn in as head of a caretaker administration yesterday. The new parliament was sworn in today and will be dissolved when the vote is held next month.

“I have read that due to my name I am the most appropriate prime minister,” Pikrammenos, whose name means “bitter” in Greek, told the country’s president yesterday. “It is a great joy and also a great burden.”

Freezing Austerity

Tsipras yesterday demanded the caretaker government freeze the implementation of wage and pension cuts and other austerity measures until the elections are held and a new government is formed. He also called for all state asset sales to be immediately frozen and said Europe must reexamine its policy of austerity and acknowledge it has failed.

The previous prime minister, Lucas Papademos, told his successor that it was important for the country to continue to meet international obligations.

“During this period, it’s particularly important to fulfill the country’s responsibilities because these policies will help the stability of the country,” Papademos told Pikrammenos yesterday in Athens after he was sworn in.

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 win with 22 percent of the vote, according to a poll by Pulse, state-run Athens News Agency said. New Democracy would finish second with 19.5, the newswire reported, citing the poll findings, published in Pontiki newspaper. The socialist Pasok party would get 14 percent of the vote, ANA said.

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