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Greece Heading to Early Elections After Presidential Vote Fails Europe Braces for Economic Fallout as Greece Heads to Early Elections
(about 9 hours later)
ATHENS — Governments and investors across Europe braced for renewed economic upheaval on Monday after the Parliament in Greece failed to avert an early general election, reviving the toxic debate over austerity as the way to cure the continent’s economic woes. ATHENS — Governments and investors across Europe braced for renewed economic upheaval on Monday after the Parliament in Greece failed to avert an early general election, reviving the toxic debate over austerity as the way to cure the Continent’s economic woes.
The election, expected on Jan. 25, is likely to be won by Syriza, a leftist party that opposes the deep budget cuts Greece has implemented in recent years. The austerity measures were imposed as a condition of the huge financial bailouts Greece has received. Senior European Union officials immediately urged Greek voters — now headed to the polls on Jan. 25 — to focus on continuing the policies that have enabled the country to ride out its previous monetary crisis and remain part of the eurozone, and that have begun to restore the country’s battered reputation for fiscal management.
Syriza has said it wants to renegotiate the bailouts and get its creditors to write off some of Greece’s crippling debts. Opinion surveys show the party headed for victory, a prospect that has unsettled creditors, investors and many fellow member nations of the European Union. But with household incomes down by a third from what they were before the policies were adopted, and unemployment higher than 25 percent, polls have indicated support for Syriza, a leftist party that opposes the deep budget cuts Greece has made in recent years as a condition of financial bailouts.
So far, the new tremors have not caused the level of panic in the eurozone that was seen in 2012, when it seemed possible that Greece would be forced to abandon the shared single currency. Even so, the populist surge in Greece prompted worries that it could spread. Syriza has said it wants to renegotiate the two bailouts, worth 240 billion euros, or about $292 billion, obtained from Greek’s so-called troika of lenders — the European Union, the European Central Bank and the International Monetary Fund — since 2010, and get its creditors to write off some of Greece’s crippling debts.
“France and Italy will be vulnerable economically, as both have done little to reform since the days of the debt crisis,” said Mujtaba Rahman, an analyst at the London-based Eurasia Group. “They will be at risk politically, given their own troubles with populist parties.” Greece’s prime minister, Antonis Samaras, has been working with the lenders on a precautionary credit line next year, but negotiations on a tough economic program have been dragging amid rising opposition to austerity.
Reflecting the jittery mood, the Athens Stock Exchange fell by 10 percent as the parliamentary vote was underway on Monday, though it retraced some of the lost ground later and finished with a loss of 4.5 percent. European leaders immediately began to warn of the possible consequences of a shift in Greek policies. The European Union’s economic commissioner, Pierre Moscovici, warned that a “strong commitment to Europe and broad support among the Greek voters and political leaders for the necessary growth-friendly reform process will be essential for Greece to thrive again within the euro area.”
The yield on 10-year Greek government bonds, which rises when prices fall, spiked nearly a full point to 9.3 percent. The outcome of the parliamentary vote also weighed on markets across the eurozone, with the Euro Stoxx 50 blue-chip index losing 0.7 percent. The euro exchange rate was little changed at $1.2189. And a top German official warned that continued European aid would be conditional on Greece’s continuing to make major cuts in public services and other changes to control spending.
Within hours of the vote in Parliament, the European Union’s economic commissioner, Pierre Moscovici, warned that a “strong commitment to Europe and broad support among the Greek voters and political leaders for the necessary growth-friendly reform process will be essential for Greece to thrive again within the euro area.” “We will continue to help Greece to help itself on its path of reforms,” Wolfgang Schäuble, the German finance minister, said in a statement. But he added, “If Greece embarks on a different path, it could be difficult.”
That seemed likely to reinforce the determination of other Europeans, particularly in the more prosperous north, to strongly oppose any Greek efforts to obtain softer bailout terms, setting the stage for new confrontation and complications in the economic negotiations between Athens and its creditors. The possibility of a new confrontation over the policies of the last decade was set off by Parliament’s failure on Monday to elect a new president in a third and final round of voting.
Wolfgang Schäuble, the German finance minister and a champion of austerity in Greece and other countries, said in an interview with the German daily Bild on Saturday that any Greek government would have to honor existing agreements. Though the coalition government lobbied furiously for its candidate — Stavros Dimas, a former European commissioner — he received only 168 votes in the 300-seat house, 12 short of the 180 votes required for election. That was the same number he received in the second ballot last week, and eight more than in the first vote on Dec. 17. That set in motion constitutional procedures to hold early elections.
“New elections won’t change anything about Greece’s debt,” he said, referring to a debt burden equal to 174 percent of gross domestic product, the highest level in the eurozone. Mr. Samaras said he would visit the current president, Karolos Papoulias, on Tuesday and ask him to dissolve Parliament immediately so that an early general election could be held on Jan. 25.
While other German officials withheld immediate comment on Monday, the Frankfurter Allgemeine Zeitung, a center-right daily, summed up what is likely to be a widespread feeling among politicians in Berlin and bankers in Frankfurt. “The country has no time to lose,” Mr. Samaras said. “We did what we could to elect a president and avert early elections and the dangers they entail. Now, what Parliament failed to do, the people must do.”
The development inspired jubilation among Syriza’s members. After the vote, Alexis Tsipras, the party leader, called it “a historic day for Greek democracy.”
“Greek M.P.s showed that democracy cannot be blackmailed, however much pressure is exerted,” he said. “Today the government of Mr. Samaras, which has looted society for the past two and a half years, belongs to the past.”
Opinion polls show the leftists firmly ahead of Mr. Samaras’s conservative New Democracy party, although Syriza’s lead has narrowed in recent weeks with growing concerns about protracted political and financial uncertainty.
The prospect of more upheaval in Greece and thus in the eurozone has loomed for several weeks, but politicians and markets alike have kept most fears to themselves. The worries are likely to resurface strongly once the New Year’s holiday is over, exacerbating other continental differences over economic policy.
Most notably, the European Central Bank faces a dilemma of whether to do more to stimulate Europe’s wilting economy at the same time as bracing for more trouble for the euro.
The election outcome battered financial markets in Greece, though the worst of the damage faded as the day wore on. Stocks plunged more than 10 percent on the Athens bourse after the vote, but regained more than half of the lost ground in late trading. The yield on the 10-year government bond, which moves in the opposite direction of the price, spiked nearly one full point to 9.3 percent as investors sold off.
But, in keeping with predictions that the eurozone was better equipped to handle Greek turmoil than it was at the start of the currency crisis, there was little impact on the broader market. Both the Euro Stoxx 50 blue-chip index and the euro ended the day almost unchanged.
Still, larger ripples may yet be felt in some of the bigger states using the euro if Greece radically alters the policies that have largely been favored by the more prosperous north.
“In this period we believe the euro’s second and third largest members — France and Italy — will be the most vulnerable to contagion, rather than Greece’s neighbors in the southern periphery,” Mujtaba Rahman, the director for Europe for Eurasia Group, a political risk consultancy, wrote in a research note on Monday. France and Italy, wrote Mr. Rahman, “have done the least in terms of reform since the days of the debt crisis and therefore remain the most vulnerable economically.”
On the other hand, he wrote, Portugal and Ireland “look stronger as a result” of thoroughgoing reforms and were benefiting economically from lower oil prices and the depreciation in the value of the euro.
The Frankfurter Allgemeine Zeitung, a center-right daily, summed up what is likely to be a widespread feeling among politicians in Berlin and bankers in Frankfurt.
“Is all that going to start up again?” said the headline on a commentary by the newspaper’s foreign editor, Klaus-Dieter Frankenberger.“Is all that going to start up again?” said the headline on a commentary by the newspaper’s foreign editor, Klaus-Dieter Frankenberger.
Greece had seemed to be on a hopeful, if difficult, road to recovery, Mr. Frankenberger said, and “right at the turn of the year, we could have done without this.”Greece had seemed to be on a hopeful, if difficult, road to recovery, Mr. Frankenberger said, and “right at the turn of the year, we could have done without this.”
The vote on Monday was the Parliament’s third attempt to elect a new president. The failure to obtain the required majority prompted constitutional procedures to hold early elections.
Though the coalition government lobbied furiously for its candidate — Stavros Dimas, a former European commissioner — he received only 168 votes in the 300-seat house, 12 short of the 180 votes required for election. That was the same number he received in the second ballot last week, and eight more than in the first vote on Dec. 17.
Prime Minister Antonis Samaras said he would visit the current president, Karolos Papoulias, on Tuesday and ask him to dissolve Parliament immediately so that an early general election could be held on Jan. 25.
“The country has no time to lose,” Mr. Samaras said. “We did what we could to elect a president and avert early elections and the dangers they entail,” he said. “Now, what Parliament failed to do, the people must do.”
The development inspired jubilation among Syriza’s members. Speaking after the vote, Alexis Tsipras, the party leader, called it “a historic day for Greek democracy.”
“Greek M.P.s showed that democracy cannot be blackmailed, however much pressure is exerted,” he said. “Today the government of Mr. Samaras, which has looted society for the past two and a half years, belongs to the past.”
Opinion polls show the leftists firmly ahead of Mr. Samaras’s conservative New Democracy party, although Syriza’s lead has narrowed in recent weeks as the prospect of protracted political and financial uncertainty has grown.
In an interview with state television over the weekend, Mr. Samaras accused Syriza of “foolish bravado,” adding that the leftists’ economic program was “full of unilateral moves” that would upset Greece’s creditors and jeopardize the country’s fragile return to growth.
Mr. Samaras’s coalition government is working with the so-called troika of lenders, which has granted Greece two bailouts worth 240 billion euros, or about $292 billion, since 2010 to keep the country liquid. In return, the troika has demanded an array of austerity measures that has slashed household incomes by a third and pushed unemployment above 25 percent.
Negotiations with the members of the troika — the European Commission, the European Central Bank and the International Monetary Fund — on a tough economic program have been dragging amid rising opposition in Greece to austerity. But eurozone officials have expressed their readiness to extend Greece a precautionary credit line next year.
The key to investor confidence, said Mr. Rahman, the Eurasia Group analyst, will be the European Central Bank and whether it undertakes bond buying at the turn of the year. “If the E.C.B. does not deliver, this could be the trigger for a major reversal in Europe-wide market sentiment,” he said.
Mr. Tsipras insisted over the weekend that his party’s program for tackling the “humanitarian crisis” in Greece was “not negotiable,” though Syriza has not explained how the Greek state would pay for the promised benefits.
The vote for the largely ceremonial role of Greek president, usually a muted affair, was held on Monday in an increasingly polarized political climate.
Political parties have accused each other of scaremongering, and new political movements are being established. One such movement is being created by former Prime Minister George A. Papandreou, who signed the first of Greece’s two loan agreements in 2010.
Mr. Papandreou belongs to the junior coalition party Pasok, the once-mighty Socialist party set up by his father. His move is expected to seriously rattle the party, which has seen its support plummet over the years as austerity-weary Greeks have withdrawn their support.