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Recession-Wracked Greece Nears Vote That May Decide Fate in Euro

Recession-Wracked Greece Nears Vote That May Decide Fate in Euro

Greece is entering the home stretch of its first election campaign since becoming a global financial pariah and the polls show no party gaining a mandate to enforce the austerity policies needed to stay in the euro.

The final surveys, published on April 20, showed as many as 10 parties with a chance of winning seats in the May 6 vote. The two biggest, traditional rivals New Democracy and socialist Pasok, may be forced into a coalition. The country needs a functioning government to ensure that it continues to receive rescue funds to keep its economy afloat.

Greece has been in recession since 2008, the year before it last elected a prime minister. It has received two bailouts and negotiated the biggest debt restructuring ever, a writeoff of about 100 billion euros ($132 billion). To keep aid flowing, the next government must make cuts equivalent to 5.5 percent of gross domestic product in 2013 and 2014, recapitalize banks and persuade voters that open-ended austerity is a price worth paying to stay in the euro.

“There are two worries,” said Sarah Hewin, senior economist at Standard Chartered Plc in London. “It may take time for the two main parties to negotiate a coalition after the election. Second, without a clear mandate from the electorate, the new government is likely to face ongoing parliamentary opposition to austerity and reform.”

Coalition Building

New Democracy, led by Antonis Samaras, will win 104 to 112 seats in Greece’s 300-member assembly, according to a poll by Public Issue SA for Athens-based Skai TV. Pasok, led by former Finance Minister Evangelos Venizelos, will take 34 to 42 seats. Provided the two agree to work together, they may have a majority.

The survey predicted that 10 parties could get more than the 3 percent needed to get into parliament. These include the Golden Dawn party, which wants to expel all illegal immigrants; the Communist Party, which wants Greece to leave the European Union; and the newly formed Independent Greeks, which wants Germany to pay Greece compensation for World War II.

Under Greek rules, no polls can be published in the two weeks before election day.

“The key message is that there will be a hung parliament,” said Lefteris Farmakis, a strategist at Nomura International Plc in London. “The formation of a coalition government between ND and Pasok remains the most likely outcome.”

‘Tough Economic Measures’

While a coalition seems possible, “to have legitimacy for ongoing tough economic measures, the margin of support needs to be solid,” Hewin said. “Opinion polls suggest that voting is likely to be close, however, with support for minority anti-bailout parties holding up.”

The last elected premier, Socialist George Papandreou, quit in November, stepping aside for former central bank governor Lucas Papademos to secure the second rescue, a 130 billion-euro lifeline to stave off financial collapse.

Campaigning has been muted, dominated by television interviews, rather than the open-air rallies that were common in past elections, to prevent a repeat of the violence that scarred the capital when Papandreou and then Papademos pushed through austerity measures in parliament.

Bank of Greece Governor George Provopoulos said on April 24 that the economy would shrink in 2012 by almost 5 percent, more than the 4.5 percent contraction the bank projected last month and the European Commission’s 4.4 percent forecast on Feb. 23. It would be Greece’s fifth straight year of contraction. Gross domestic product has shriveled almost 14 percent since 2009.

Voters’ Wrath

Unemployment this year may exceed 19 percent. More than one in two young Greeks are unemployed.

That’s making politicians reluctant to risk voters’ wrath by saying that more cuts may be needed in return for aid.

“Of course the deficit must be cut,” Samaras said April 22. “But by clamping down on wasteful public spending, not with across-the-board cuts in pensions that deepen the recession.”

Samaras vowed to “right the wrongs” of austerity measures that have contributed to the economic slump.

Venizelos, who negotiated the international rescue that was granted last month by the European Union and International Monetary Fund, must rebuild support for Pasok, which fell earlier this year to as low as 8 percent. The socialists took power in 2009 with 44 percent.

‘Painstaking Effort’

Polls show Greeks clinging to the euro while rejecting the measures dictated by the EU and IMF.

Support for the Independent Greeks party, set up on Feb. 24 by New Democracy rebel Panos Kammenos, increased to 8.5 percent from 6.5 percent, according to a poll on April 1. He wants to cancel the agreement with the EU and IMF.

Provopoulos says the election may hold the key to the country’s euro membership.

The country must choose between “an organized and painstaking effort to reconstruct the economy within the euro area” with the help of its European partners, or “regressing decades socially and economically, which would eventually lead the country out of the euro area and the European Union,” he said on April 24.