Greeks Return to Ballot Box as Crisis Nears Decisive Moment
Greeks head to the ballot box in two days for a contest that may determine the fate of the world’s first democracy and the future of the newest reserve currency, while roiling markets from Wellington to Wall Street.
Almost 10 million Greeks will vote for the second time in six weeks after a May 6 ballot failed to yield a government. The constitution permits a third election too. The final polls, published on June 1, showed no party set to win a majority. Exit polls will be released when voting ends at 7 p.m. in Athens, with a first official result estimate due around 9:30 p.m.
The June 17 vote will turn on whether Greeks, in a fifth year of recession, accept open-ended austerity to stay in the euro or reject the conditions of a bailout and risk the turmoil of becoming the first to exit the 17-member currency. World leaders have said they’d prefer a pro-euro result, underscoring concern over global repercussions.
“I want Greece to remain in the euro zone, but Greeks must understand that this requires a relationship of trust,” French President Francois Hollande said June 13 in an interview with Athens-based Mega TV. “If the impression is given that the Greeks want to distance themselves from their agreed commitments and to abandon every prospect of recovery, there will be countries in the euro zone that will prefer to terminate Greece’s presence.”
Syriza, the party that promises to renege on Greece’s end of the bailout deal, and New Democracy, which backs the rescue, ran even in final opinion polls. The socialist Pasok party, which won the 2009 election and led the country into the bailout, was third at about 13 percent.
Now in its third year, the European debt crisis has rounded back to Greece, which sparked the turmoil in October 2009 when Pasok Prime Minister George Papandreou revealed a deficit four times more than European rules allowed. Greece has since gotten rescue packages totaling 240 billion euros ($303 billion). The ballot will be a first test for a 100 billion-euro firewall for Spain, which on June 9 became the fourth euro country to seek a rescue.
“Core euro members are going to great lengths to make sure that Greece would not be replicated elsewhere,” Holger Schmieding, chief economist at Berenberg Bank in London, said in an e-mailed response to questions. “If need be, the firewalls would be strengthened. But new money will only go into the firewall, not to Greece.”
Central banks intensified warnings that Europe’s failure to tame its debt crisis threatens to roil the world’s financial markets and economy as Greece’s election looms as the next flashpoint for investors.
Spain’s 10-year bond yield vaulted to 7 percent yesterday in a fresh sign of the stress that has plagued the region for two years.
“What has raised the stakes since Spain requested external financial assistance last weekend is the glaring disconnect between market sentiment, which has become ever more binary, and Greek politics which has become ever more blurred,” Nicholas Spiro, managing director at Spiro Sovereign Strategy in London, said in an e-mailed response to questions. “It’s as clear as the light of day that Sunday’s election result is not going to be a market-friendly nor a conclusive one.”
Stocks rose and commodities climbed for a second day on speculation central banks will take steps to boost economies as Europe’s debt crisis saps growth. Spanish, Italian, U.K. and U.S. bonds advanced. The MSCI All-Country World Index (MXWD) added 0.5 percent at 7:45 a.m. in New York, heading for a second weekly gain. Standard & Poor’s 500 Index futures increased 0.3 percent. The yield on the Spanish 10-year bond dropped five basis points to 6.86 percent.
The euro, created in 1999, has lost 3.6 percent since May 6, when Syriza’s second-place finish increased the prospect of a Greek exit from the currency union. New Democracy won 18.9 percent in the May 6 election and Syriza got 16.8 percent.
A possible Greek departure from the euro has cast a pall around the world. President Barack Obama has blamed the euro crisis for a slowdown in U.S. employment growth.
“It’s in everybody’s interest for Greece to remain in the euro zone, while respecting its commitments to reform,” Obama said June 8. “European leaders understand the need to provide support if the Greek people choose to remain in the euro zone. But the Greek people also need to recognize that their hardships will likely be worse if they chose to exit.”
Taiwan’s Premier Sean Chen plans a Cabinet meeting, tentatively scheduled for June 19, to discuss strategy after the Greek election. European finance ministers plan to issue a statement at a summit of world leaders in Mexico scheduled for June 18-19.
“Greece was the first default, now it would be the first exit from the euro,” Riccardo Barbieri, chief European economist at Mizuho International Plc, said in an e-mailed answer to questions. “The ECB and other European institutions must be ready to intervene if necessary to support Spain and Italy but this inevitably entails a further accumulation of sovereign risk. Until the markets see that there is a line of defense, uncertainty will remain very high.”
Syriza leader Alexis Tsipras has pledged to keep Greece in the euro even while scrapping state-asset sales, civil service job cuts and wage and pension cuts. Bailout proponents, such as New Democracy leader Antonis Samaras, say Tsipras’s policies risk forcing Greece out of the euro and causing hyperinflation, bank runs and widespread poverty.
Standard & Poor’s said in a June 4 report that the chance of Greece leaving the euro area in coming months was one-in- three.
“Both Samaras and Tsipras want to renegotiate Greece’s bail-out agreement,” said Spiro. “The difference between the two is that Tsipras is more willing to gamble with Greece’s membership of the euro.”
New Democracy led Syriza by 22.7 percent to 22 percent, according to an ANT1 TV poll on June 1, the last date surveys were made public in accordance with Greek election law. As the stakes rise for Greeks, along with the temperature, campaigning has become more urgent. Posters for Syriza, promising a path to hope, vie for space in Athens with New Democracy posters.
Samaras, who will hold his final campaign rally in central Syntagma Square in Athens tonight, said on June 13 that the choices facing Greeks at the ballot-box are stark: “government or instability; the euro or drachma.”
“The dilemma is whether Greece has a European future,” Dimitris Papadoukis, 53, an employee at the state-owned Hellenic Post SA, said. “That is first and foremost. We may have delayed, or made mistakes, but that doesn’t mean we should go back decades.”
Papadoukis spoke outside New Democracy’s election pavilion in Syntagma Square, the site of anti-government rallies exactly a year ago that drew as many as 50,000 protesters. He says he will vote for Samaras even though he knows he may lose his job as part of the spending cuts demanded by the troika of creditors from the European Union, the European Central Bank and the International Monetary Fund.
The spending reductions demanded by the troika to bring the country back to financial health have included cuts to pensions and the minimum wage amid tax increases, pulling Greece into a fifth year of contraction and spurring unemployment to a record of more than 22 percent. Tsipras has tapped into that pool of growing anger.
“The bailout governments have driven the country to catastrophe,” Tsipras said in a Bloomberg Television interview on June 13. “What’s surprising is that these people who have run the country aground are still demanding they govern, to finish off the job.”
German Finance Minister Wolfgang Schaeuble, in comments to Stern magazine published on the same day, said he had “really great sympathy with the man on the street in Greece.”
“But I can’t spare him that,” he said. “The Greek minimum wage is just dropping to the level of Spain. If the country wants to become competitive again, it has to sink.”
Worried Greeks have stepped up the pace of withdrawing their savings before the elections on concern the nation may move closer to abandoning the euro, bankers familiar with the situation said on June 13.
Deposit outflows jumped in the days following the May 6 election and were as much as 6 billion euros in May, Athens- based Kathimerini newspaper reported June 9, without saying where it got the information. Greek bank deposits by businesses and households rose to 166 billion euros in April from 165.4 billion euros the previous month, according to a statement by the Bank of Greece on its website on May 31.
The outflow is increasing the strain on a banking system that has suffered since the beginning of the crisis. An exit from the euro would cut lenders off from access to ECB funding.
Vassilis Fanis, 42, a hospital employee, said he voted for Syriza on May 6 and now doesn’t know if he’ll cast his vote for Tsipras again. He said he’ll vote for the “lesser of two evils” without saying who that is.
Tsipras “doesn’t seem to want to form a government,” Fanis said. “They know it’s difficult and they have no solutions.”
To contact the reporter on this story: Maria Petrakis in Athens at firstname.lastname@example.org