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Greek impasse forces early elections and fears of euro crisis return Greek impasse forces early elections and fears of a return to euro crisis
(about 4 hours later)
ATHENS — Fresh battles over euro zone bailouts loomed on Monday after Greek lawmakers forced early elections that could favor a leftist party pledging to renegotiate the austerity rules and loans that saved the country from fiscal collapse. ATHENS — The Greek government collapsed Monday, setting the stage for elections in four weeks that are shaping up as a contest between the public’s anger over the pain of austerity and its fear that the alternative could be even worse.
The elections were set in motion when parliament failed — for a third time — to elect a new president. The position is largely ceremonial in Greece, but the impasse reflected the deep divisions over the tough economic stewardship imposed by the European Union and international lenders since Greece’s financial nose-dive more than five years ago. If Greece chooses anger — and votes for Syriza, the radical leftist party now topping opinion polls — the elections could presage a much broader showdown in 2015. That clash could ripple across Europe as political populists challenge the philosophy driving the continent’s agonizingly slow economic recovery.
Prime Minister Antonis Samaras — who had strongly opposed the push for elections — set the date for Jan. 25. Riding high at the moment is the far-left Syriza Party and its populist, anti-austerity message. Far-left parties are gaining ground in several European countries, including Spain and Ireland. But Greece could offer the radical left its first opportunity to govern, and to throw down a gauntlet by demanding an immediate renegotiation of the country’s $284 billion bailout agreement.
In a sign of market jitters, the Athens Stock market was down sharply. Global markets were mixed. Syriza has said that it will stop paying Greece’s debts unless the country’s international paymasters agree to relax the strict economic stewardship required in exchange for the bailout, which saved the country from financial ruin earlier in the decade. The program has helped Greece erase its deficit, but critics say it has also contributed to sky-high unemployment and poverty rates that have left the country deeply unsettled.
Samaras warned over the weekend that a Syriza government could lead the nation to “bankruptcy and exit from the euro.” Hours after the parliament vote, he urged Greeks not to undo the “sacrifices” that have brought some degree of stability after an economic meltdown that left virtually no one untouched. “The overall framework of the euro zone is in crisis — not from Syriza or the left, but because of the policies of austerity,” said Euclid Tsakalotos, a top Syriza economic adviser. “Unless Europe moves in a more just and socially democratic direction, then it’s in danger.”
A host of problems, including decades of bloated public sector spending and mismanagement, pushed Greece into a crippling recession and far outside the fiscal rules for nations using the euro. Syriza officials are adamant that they will keep Greece in the euro zone, as the vast majority of the public demands. But the party has not said what it will do if its lenders — the European Union and the International Monetary Fund — refuse to negotiate. Experts fear that the party’s hard-line stance, with no discernible backup plan, could lead to an accidental exit.
Huge rescue packages kept Greece afloat, but they came with strict demands for fiscal housecleaning. They included sharp cutbacks in government services, punishing public sector layoffs and other belt-tightening measures. “Syriza would only put Greece’s position in the euro zone at risk through inexperience and a lack of knowledge of how to negotiate with Europe,” said Nick Malkoutzis, an analyst with MacroPolis.
Syriza has vowed to halt payment on Greece’s debt until the terms of the country’s $284 billion bailout agreements can be renegotiated, and it says it will thumb its nose at international lenders by ramping up public spending. That prospect spooked investors Monday, with the collapse of the pro-austerity, center-right government sending bond yields sharply higher and Greek stocks to two-year lows.
Syriza leader Alexis Tsipras called the upcoming elections a chance to reverse the austerity pacts that “plundered” the country under Samaras, who took office in 2012. Although European officials have expressed confidence that fallout from political instability in Greece could be contained, there were indications Monday that it has the potential to spread, with other markets in southern Europe taking hits.
“The austerity agreements will also belong to the past,” Tsipras said. In a commentary issued Monday, Eurasia Group analyst Mujtaba Rahman said the euro zone’s second- and third-largest members — Italy and France — will be particularly susceptible to contagion if Greece descends into political and economic chaos.
The prospect of a head-on clash with creditors has badly rattled financial markets and revived painful memories for some Greeks of a time when their country flirted with ruin. “Both countries have done the least in terms of reform since the days of the debt crisis and therefore remain the most vulnerable economically,” Rahman wrote.
But for others here — and in debt-ridden countries across southern Europe — the rise of the far left has kindled a once-faint hope that the continent can escape the chokehold of austerity. Early Greek elections were set in motion when parliament failed — for a third time this month — to elect a new president.
“Europe is changing,” said George Stathakis, a Syriza member of parliament and one of the party’s leading voices on economic policy. “Because of the fact that the European economy is the only one in the world that is doing this badly and has stuck to a growthless kind of situation, it’s become clear that things have to change.” The vote, usually a formality, instead became a referendum on the government, with the constitution requiring at least 180 members from the 300-member parliament to vote for the government’s candidate to stave off collapse.
Stathakis pointed to emerging leftist groups in Spain, Italy and Portugal that share Syriza’s contempt for the European economic consensus and are prepared to join the party in pressuring authorities in Brussels and Berlin to change their tack. Prime Minister Antonis Samaras, in office since 2012, had sought for weeks to persuade members of parliament to stay the course. But Monday, he could only watch nervously as a roll-call vote of the fractious body — which spans the ideological spectrum from communist to neo-Nazi — quickly turned against him. In the end, he fell 12 votes short.
But unlike those countries, Greece is no longer the master of its own fiscal destiny. Within hours, the campaign had kicked off. The pro-austerity Samaras — who set the election for Jan. 25 -- urged Greeks not to undo the “sacrifices” that have brought some degree of stability after an economic meltdown that left virtually no one untouched.
Any shift away from austerity for Greece would require a high-stakes renegotiation with its bailout paymasters that analysts say could plunge Greece back into the depths of a debt crisis. “The government did everything possible to get a new president elected, and a minority of MPs now drags the country to early elections,” Samaras said on state-run Nerit TV. “I will do all to guarantee that the country stays on the path of reforms.”
“We could be entering a process that leads to a point of no return,” said George Pagoulatos, a professor at the Athens University of Economics and a former government adviser. “There is no will among the Greek public or even among Syriza to exit the euro. But if they start playing hardball, speculation about a Greek exit will revive. And that’s dangerous because speculation can become a self-fulfilling prophesy.” Over the weekend, he had warned that a Syriza government could lead Greece into bankruptcy.
Syriza officials have declined to say what they will do if the so-called troika of international lenders — the European Commission, the European Central Bank and the International Monetary Fund — refuses to yield to the party’s demands. Greece has been at that precipice before. Five years ago, a host of problems, including decades of bloated public sector spending and mismanagement, pushed the country into a crippling recession and far outside the fiscal rules for nations using the euro.
Asked about Syriza’s fallback plan, Stathakis was unequivocal. “There is no plan B,” he said. Huge rescue packages kept Greece afloat, but they came with strict demands for fiscal housecleaning. They included sharp cutbacks in government services, punishing public-sector layoffs and other belt-tightening measures.
The prospect of a hard-line Syriza government going toe-to-toe with equally uncompromising European negotiators has prompted a sharp spike in Greek bond yields, even before the current government falls. Syriza leader Alexis Tsipras called the upcoming elections a chance to reverse those austerity pacts, which he said had “plundered” the country.
Samaras’s candidate for president, Stavros Dimas, has come up short in the first two rounds of balloting this month. In the final vote Monday, Dimas again came up short of the 180 votes needed in the 300-member parliament. “With the will of our people, in a few days bailouts tied to austerity will be a thing of the past,” Tsipras said. “The future has already begun.”
Polls show that most Greeks don’t want new elections. But Syriza, which is leading the charge to bring down the government, is likely to be the biggest beneficiary. It has consistently held a lead of several points over Samaras’s New Democracy Party, with a smattering of smaller parties trailing well behind. But on the streets of Athens, there was apprehension that the future could look all too much like the recent past.
Syriza, a Greek acronym that stands for Coalition of the Radical Left, has risen rapidly, having emerged as a unified party only last year. Led by a combination of far-left activists, union organizers and university professors, it has lately moderated some of its stances, including its earlier threat to tear up the bailout and default on the nation’s debt. “We are very uneasy. We could be going back to 2012,” said Dimitris Stathopoulos, a 57-year-old textile salesman who has had to contemplate shuttering a business that was started by his great-grandfather more than a century ago. “Syriza is promising to do everything for everybody. We know this is impossible.”
But the party still presents itself as an anti-establishment assault on Greece’s notoriously corrupt and insular brand of politics. Nikolas Zirganos in Athens and Brian Murphy in Washington contributed to this report.
The election may be especially messy given the compressed time frame — just a month for campaigning, followed by a deadline for hammering out an agreement with international lenders that pops up only weeks later.
Antonis Papagiannidis, a veteran Greek journalist and analyst who thinks it’s more likely than not that Greece will leave the euro in the next two years, said Syriza will need allies if it wants to succeed in those negotiations. But the party may be hamstrung before it even starts by lingering resentment at home.
“They will have to corral wider support to negotiate with Europe and the IMF,” he said. “After an ugly campaign, that will be very difficult.”
Murphy reported from Washington. Elinda Labropoulou in Athens contributed to this report.