Greek elections 2012: Greece bailout back on as hopes rise for future of the euro

Greek elections 2012: Greece bailout back on as hopes rise for future of the euro

• Pro-bailout centre-right New Democracy party wins 29.6% of the vote
• Antonis Samaras had three days to form coalition government
• World markets initially rise on the positive outcome of the election
• But stocks have since tempered  by increasing fears over Spain and Italy
• FTSE-100 down 0.05% down; CAC 40 down 0.67%; DAX up 0.13%
  

By Jason Groves and James Chapman

PUBLISHED: 03:25 EST, 17 June 2012 | UPDATED: 13:42 EST, 18 June 2012

Greek conservative leader Antonis Samaras will form a coalition government tomorrow after beginning a delicate process of talks with other pro-bailout parties - ending weeks of uncertainty over the debt-crippled country's future in the eurozone.

Mr Samaras's New Democracy party won a majority of the votes in elections on Sunday - but, crucially, not enough to form a government on its own.

The campaign was closely watched by global leaders and markets, while central banks stood ready to intervene in case of financial turmoil as the election was seen as a vote on whether Greece should stay among the 17 nations that use the currency.

A Greek exit would have potentially catastrophic consequences for other ailing European nations, while the fallout would hit the US and the entire global economy.

Uneasy allies: As New Democracy leader Antonis Samaras, left, tries to form a coalition government, he has been meeting with heads of other political parties, such as Independent Greeks leader Panos Kammenos, right

Leaders of the European Union appeared relieved that a pro-austerity government could now be formed.

The EU 'is convinced that continued fiscal and structural reforms are Greece's best guarantee to overcome the current economic and social challenges', it said in a statement.

Asian stock markets climbed early on the news, as did those in Greece.

Working the phones: While the Syriza radical left coalition has ruled out helping Mr Samaras, other parties have been more receptive

Sunday's vote 'will probably ease fears of an imminent Greek euro exit', said Martin Koehring, of the Economist Intelligence Unit.

But he added: 'The key question is how quickly can a government be formed?'

With 129 of Parliament's 300 seats, Mr Samaras' New Democracy party lacked enough MPs to govern alone, and sought allies among the pro-bailout Socialists, who came third.

But the deal that evaded Mr Samaras after first elections on May 6 looks more attainable this time.

With the Socialists' backing he would control 162 seats, and could seek a further boost from the small Democratic Left party, which, while opposing the country's harsh austerity programme, has said it will do what is needed to help form a strong government.

With 99.95 per cent of the ballots counted so far, New Democracy has 29.66 per cent, followed by the Syriza radical left coalition at 26.89 per cent.

The extreme far-right Golden Dawn party, whose members have been linked with violent attacks on African and Asian immigrants, came fifth with 6.92 per cent - winning 18 seats, down from the 21 it elected on May 6.

Syriza, which campaigned on a promise to renege on the bailout commitments, has ruled out cooperation with Mr Samaras.

By suggesting they could form an alliance, the pro-bailout political parties have given the 17-nation eurozone hope that the single currency may be saved.

Mr Samaras met Evangelos Venizelos, the head of the Socialist PASOK party, at 3pm after he received a mandate to form a government from Greek President Karolos Papoulias.

The once-mighty PASOK, now reduced to third place after the dramatic rise of the leftist anti-bailout party SYRIZA, said it would support Mr Samaras.

Days of chaos: Greece is facing a race against time to form a coalition government, but there was a glimmer of good news as it looks like the ultra-right party Golden Dawn will not be part of any ruling group

Glimmer: The ultra-right party Golden Dawn (left) may have won 18 seats but is unlikely to be involved in a coalition which Antonis Samaras (right) is now trying to form

Victorious: Leader of conservative New Democracy party Antonis Samaras arrives with his wife Georgia to make statement on the election results in Athens after claiming victory in Sunday's national election

It means the nation could proceed with its austerity programme and be eligible for bailout money.

Mr Samaras said Greece would fully meet its commitments but added: 'We will simultaneously have to make some necessary amendments to the bailout agreement, in order to relieve the people of crippling unemployment and huge hardships.'

In deep recession, crushed under its huge public debt and forced to slash public spending and hike taxes repeatedly, Greece is struggling to restore its near-bankrupt economy, and a new government could face new protests after taking office.

'The crisis has been postponed, not necessarily averted,' said Theodore Couloumbis, political analyst and vice-president of Athens-based think-tank ELIAMEP.

'For this government to last it has to show results. You can't continue with 50 per cent youth unemployment and a fifth straight year of recession,' he said.

Defiance: Head of Greece's radical left Syriza party Alexis Tsipras, right, waves to supporters late last night in central Athens as the radical leftist bloc conceded defeat but vowed to continue its fight against the punishing terms of an EU/IMF bailout

Stalemate: Alexis Tsipras, leader of radical left Syriza party, takes to the podium yesterday to vow to continue the fight against Greece's crippling austerity measures

Taking to the streets: Supporters of the far right party of Golden Dawn celebrate last night after official projections showed the party had won 18 seats in the 300-member parliament

SYRIZA, which had promised to tear up the bailout deal signed in March with the European Union and International Monetary Fund, scored strongly in the election.

Party leader Alexis Tsipras promised to continue its opposition to the painful austerity measures demanded of Greece.

'I don't think anything good will come out of these elections,' said Dinos Arabatzis, a 56 year-old taxi driver who voted for New Democracy.

'DON'T PRECIPITATE A GREEK EXIT FROM EURO', GERMANY WARNED

Lord Mandelson urged Germany not to precipitate a Greek exit from the euro, saying: ‘I would say be careful what you wish for.

‘Not only do you have the risk of contagion of market panic spreading across the more vulnerable members of the eurozone and this sort of growing sense within the markets that the euro has ceased to be a permanent currency.’

In a speech at the G20 summit of world leaders in Mexico today, David Cameron will repeat his warnings that eurozone countries must make sacrifices if they want their currency to survive.

‘The reality is that there are a set of things that eurozone countries need to do, and it’s up to eurozone countries whether they are prepared to make the sacrifices these entail,’ the Prime Minister will say.

‘The challenge is one of political will as much as economics. Of course these things are difficult to do. But just because these things are difficult does not mean we should not say them.

‘If the eurozone is to stay together, then it has to make at least some of these difficult decisions.

‘The alternatives to action that creates a more coherent eurozone are either a perpetual stagnation from a eurozone crisis that is never resolved, or a break-up caused by a failure to address underlying economic fundamentals that would have financial consequences that would badly damage th e world economy, including Britain.’

Mr Cameron will add that the ‘fight for the future of the world economy won’t be won by a few governments in isolation’.

The Prime Minister and Chancellor George Osborne have long argued that a single currency can work only if the eurozone creates an effective single economic government.

Britain would stand outside any such arrangement, and the Prime Minister refused to sign a treaty taking more tentative steps toward a fiscal union last year.

'Whoever is in power now will get burned. Samaras will get burned, and Tsipras will come out much stronger if we go to elections again - that's what worries me,' he said.

With nearly 100 per cent of ballots counted in the election, a re-run of a poll on May 6 that left no party able to form a government, New Democracy had won 29.7 per cent of the vote, ahead of SYRIZA on 27 per cent, and PASOK on 12.3 per cent.

A 50-seat bonus automatically given to the party that comes first would give a theoretical New Democracy-PASOK alliance 162 seats in the 300-seat parliament, enough for a majority broadly committed to the €130billion bailout.

'The result showed people want the euro, but society remains divided. SYRIZA will be a militant opposition, possibly complicating the new government's efforts,' a senior New Democracy official said.

'The new government must deliver a positive development soon - an easing of the bailout terms or a positive sign in the economy - or people will lose trust in a week.'

In the markets, trust had an even shorter shelf life. Though the FTSEurofirst 300 index rose 1.1 per cent at the open, the index had shed all those gains before two hours were up.

It seems the underlying problems in the euro zone brought investors back to earth. The euro's rise also evaporated.

More worryingly, Italian and Spanish borrowing costs rose strongly with yields on Spain's 10-year bonds at dangerously high levels of over 7 per cent with equivalent Italian debt over 6 per cent.

The FTSE-100 is 0.05 per cent down at 5,475.88; France's CAC 40 is 0.67 per cent down at 3,066.93; while Germany's DAX is 0.13 up at 6,237.66.

PASOK officials said today that the meeting would decide how they would support Samaras - whether by participating fully in government, or by voting with the coalition in parliament.

The smaller, anti-bailout Democratic Left party was also due to decide today whether it would back the conservatives.

The new government may get some help from eurozone peers, relieved that SYRIZA had not won and set Greece on course for a euro exit with incalculable consequences for the rest of the 17-member bloc.

However, they have offered no prospect of any major overhaul of the bailout agreement, which requires Greece to find €11.7billion in spending cuts in June to qualify for the next loan instalment.

Greece has enough funds only last for a few weeks without more aid but European partners have become deeply suspicious of the commitment of Greek politicians to implementing unpopular austerity measures.

Show of support: Golden Dawn supporters shout slogans and celebrate the results of the elections outside their headquarters office in Thessaloniki last night

One a knife-edge: Supporters of Greek Radical Left Coalition (SYRIZA) celebrate as the first election results show their party has gain massive support

In the balance: Supporters of New Democracy conservative party watch the results of exit polls announced at the campaign kiosk of the party at Syntagma square, Athens

German Foreign Minister Guido Westerwelle said the substance of the bailout agreement was 'not negotiable', but he said creditors might be willing to offer some flexibility on timing for some of the targets, given the time lost in campaigning.

'We're ready to talk about the timeframe as we can't ignore the lost weeks, and we don't want people to suffer because of that,' he told German radio today.

  All polls Click to view yesterday's poll results

However, even if it were granted some leeway, a coalition that won only 40 per cent of the vote would struggle to push through reforms in the face of deep public resentment of repeated rounds of tax hikes and pay and pension cuts.

Despite his loss Tsipras, 37, appeared buoyed by the election and rejected calls to join an all-party unity government, saying his party was now the main opposition force and promising to fight the bailout package.

His attitude has raised fears of a return to the anti-austerity protests that have left parts of Athens scarred by angry graffiti and patrolled by squads of police in riot gear.

'Obviously I voted for SYRIZA so it could win, but the left is becoming stronger by the day and I'm happy about that,' said Panagiotis Panagiotou, 55, a butcher in central Athens whose business has been hit by the crisis.

'SYRIZA will be a very powerful opposition party and when we have elections again - which we will - it will be even stronger, if not first.'

Underlining the signs of potential instability, the ultra-nationalist Golden Dawn party took 18 seats, repeating its success of May 6 and confirming its status as a force in Greek politics, carried by an angry mood of public protest. 

Austerity vote: Young women at the ballot box today queue to vote in a rerun of the election six weeks ago

WHAT WILL HAPPEN IF THERE'S PANIC ON WORLD MARKETS?

If the election results spark panic on financial markets today, central banks around the world are ready to launch a massive intervention.

Germany will come under intense pressure from other world leaders at the G20 to throw a lifeline to moderates in Greece, perhaps by giving Athens longer to pay off its huge debts.

Angela Merkel is also being pressed to agree a lasting deal to shore up the eurozone, which would effectively mean Berlin underwriting the debt of struggling economies.

However the strong showing by Syriza is a major blow to the German chancellor and other EU leaders who had urged Greek voters to deliver a decisive show of support for the bailout deal.

Any new coalition is likely to prove too fragile to survive for long, given the intense pressure Greece’s economy is under.

Party leader Alexis Tsipras has vowed to rip up Greece’s bailout deal and repeal the austerity measures, which have included deep spending cuts on everything from health care to education and infrastructure, as well as tax hikes and reductions of salaries and pensions.

His pledges, which include cancelling planned privatisations, nationalising banks and rolling back cuts to minimum wages and pensions, have horrified European leaders.

Germany has warned that payments to Greece will be frozen if it abandons the terms of the bailout deal â€" a move that would see Greece run out money by July 20.

Leaders of Italy and Spain, two countries at the centre of contagion fears in the eurozone debt crisis, today welcomed the Greek election result as good news for Europe.

Italian Prime Minister Mario Monti said the poll outcome augured well for the future of the European Union and eurozone countries but added that Athens must move quickly to form a new government.

'This allows us to have a more serene vision for the future of the European Union and for the eurozone,' he told reporters in Mexico upon arriving for a G-20 summit.

Monti, whose comments were aired on Italian television, said he was very pleased with the the victory of the New Democracy party.

'We hope that a strong government can be formed which confirms the commitments made with the EU,' he said.

Monti said Greeks had understood the importance of the EU, even if under difficult circumstances.

Speaking on his arrival at Los Cabos for the G-20 talks, Spanish Prime Minister Mariano Rajoy greeted the election outcome as 'good news for Greece, very good news for the European Union, for the euro and also for Spain'.

'I am totally convinced that this strengthens the euro. The euro project is irreversible and we must continue to make progress on it.'

Both Spain and Italy saw their borrowing costs rise to near unsustainable levels as investor jitters about a possible Greek exit from the eurozone intensified the currency bloc's debt crisis in the weeks leading up to the rerun Greek election.

Rajoy said he was in favour of European fiscal integration and a banking union. 'It's true that some things take time but it's also true that we need to take steps in the right direction,' he added.

Vote for me: Syriza party leader Alexsis Tsipras casting his vote yesterday at a polling station in Athens

Voting: A Greek Orthodox priest casts his ballot at a primary school in Athens

Young voter: A mother takes her toddler along as she goes to the polls which could spark a deeper eurozone crisis

As beggars fight for scraps, even police flirt with the Neo-Nazis, writes Andrew Malone in a special dispatch from Athens

Basking in the sun as Greece went to the polls yesterday, Dimitri Panaglos sipped a cold beer and gave a personal â€" and very cynical â€" insight into how his tiny country could ignite global financial meltdown and leave the cradle of civilisation in economic ruins.

Widely travelled, with family in London where he studied for a degree in fine art, the 40-year-old smiled grimly and told me: ‘We Greeks are all thieves.

People didn’t know it when we had the drachma. But you soon knew when we joined the euro. We borrowed and spent without ever planning to pay it back. That’s just the Greek way.’

On the move: Supporters of the far right party of Golden Dawn toast their election result in which they provisionally won 18 seats in the Greek parliament

Now selling hand-drawn cartoons to tourists, having lost his studio and home, he added: ‘We are Greeks, not Europeans. That’s why we have always had two prices in every cafe â€" one on the sign that’s for foreigners and local cheap rates for Greeks.

‘Europe has never understood Greece â€" it’s a country where you take from foreigners, not give.’
Many of his countrymen would fiercely dispute his words. What cannot be denied, however, is th at the good life seems to be coming to an emphatic end for the Greeks.

With Europe demanding austerity measures in return for keeping the country afloat â€" more than 240billion euros has already been provided by Europe’s taxpayers â€" Greeks were last night effectively voting on whether to accept the deal or plunge into chaos and possible bloodshed.

The EU has said that the conditions of the latest 130billion-euro bailout deal must be accepted fully by a new government or funds will be cut off, driving the country into bankruptcy.

Angela Merkel, the German Chancellor, warned that Greece will not be allowed to dodge its austerity agreement and ‘lead everyone else through the arena by the nose ring’.

Show of strength: Members of the extreme right-wing Golden Dawn shout slogans and celebrate the results of the elections outside of their headquarter office in Thessaloniki

Many businesses are already pulling out of the country, with Carrefour, the French supermarket giant, the latest to announce it is quitting. This is against a background of fears that Greece is about to descend once more into the political dark ages almost four decades after the end of the country’s military dictatorship.

Germany’s biggest newspaperBild, , summed up the mood of taxpayers there in an open letter to the Greek people this weekend.

It said: ‘Your cash machines continue to give you euros only because we put them there, the Germans and the other nations that have the euro.

‘Yet you still call us “Nazis”. If the elections are won by parties that want to put an end to austerity and reform â€" breaching every agreement â€" we will stop paying. You will choose between painful logic and complete disaster. And we are very much afraid that you don’t get that yet.’

Already, in a chilling portent of what ma y lie ahead, some hospitals were yesterday running short of medicines. 

As a harbinger of possible civil unrest, two grenades were thrown at a TV station. No one was hurt, it heightened fears that armed groups are preparing to capitalise on any disorder.

With predictions of violence if the country exits the euro, and with shortages of money to pay for petrol, medicines or power, thousands of Athenians left the capital over the weekend, fearing battles between groups fighting for control of the country.

The latest election results have threatened to spark turmoil across the Eurozone as Greece looks set to reach political stalemate while rival parties try to form a coalition government

Countless Greeks have moved their money abroad â€" fearing banks could run out of money in the event of a Left-wing triumph and prompting EU leaders to finally put an end to the seemingly limitless amounts of cash lavished on a country of under 11million people.

Meanwhile, in what’s been called Drachmageddon, central banks from London to Tokyo are readying new arsenals of money to defend banks and national currencies against any post-election turmoil on the financial markets.

All this has started to fracture Greek society. Crime is soaring, while rubbish piles up in the streets and beggars proliferate.

Traditionally a rough port city, for all its ancient ruins and noble history, Athens is now the scene of frequent violence as even beggars fight viciously over scraps.

Yesterday I watched two groups of immigrants battling over possession of an abandoned shopping trolley loaded with junk. After punches were exchanged and one man was battered with a piece of wood, the winners of this pitiful contest ran off, whooping and shouting, pushing their trolley of scrap metal.

Ominously, such a febrile mood is playing into the hands of the resurgent, black-shirted fascists and neo-Nazis who now patrol the streets and have launched attacks in immigrant areas. They are often seen riding around on powerful motorcycles and armed with clubs and knives.

Simmering tensions: A immigrant begs next a New Democracy election kiosk at Syntagma square in Athens, as the country appeared to be looking for a political solution among the more extreme political parties

Outside the headquarters of the far-right Golden Dawn party I watched yesterday as muscular men in black T-shirts waved and cheered as police on motorbikes roared past, giving thumbs-up signs to the neo-Nazis protesters. Elements in the police are alleged to have strong links with the far-Right.

Nico, one stocky member of the group, told me that he and his cronies have a ‘zero tolerance’ policy towards immigrants suspected of crimes and ‘stealing’ jobs from local people.

He warned: ‘I can’t say what we will do â€" but there will be actions taking place through the night.’
So far, similar ‘actions’ have resulted in brutal attacks on immigrants, estimated to make up almost two million of Greece’s population.

In one incident, an African man was run through with a sword in front of stunned passengers on the capital’s gleaming 20billion-euro metro (paid for, of course, entirely out of EU cash).

With Go lden Dawn vigilantes touring immigrant areas on motorbikes, and more attacks feared, the issue of racial violence was highlighted after five Egyptians were savagely attacked in the capital, and a member of the foreign press was badly beaten for filming masked neo-Nazis chasing Africans through the streets.

Perhaps, even at this late hour, Greece can pull back from the brink.
But as the stars came out over the Acropolis last night, it was difficult not to conclude that whatever the election outcome, darkness beckons for this once proud country.

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IN ATHENS, MY SISTER IS HELPING TO FEED 80 PEOPLE A WEEK.... NEVER HAVE I KNOWN SUCH DESPERATION

Rally: Syriza Party leader Alexis Tsipras

When I was staying with my sister Lydia in Athens a month ago, she and her friends were busy putting leftover food in Tupperware boxes, writes VICKY PRYCE.

They then took them to families in the Voula suburb so they could feed their children.

A year ago, the organisation my sister helps was feeding 15 people a week â€" nearly all of them from homeless, immigrant families.

Now that number is 80, and half of them are Greeks. It is another sign of how desperate things have become there.

With just two per cent of Europe’s GDP, Greece is a tiny country. But right now, the Greeks are holding the future of the eurozone in their hands.

Today’s election â€" the second attempt to vote in a government to steer Greece towards reform and recovery â€" has been one of the most talked about events in the world.

In the UK, the Government has made huge quantities of extra liquidity available to the banking system, i n case the markets panic should the results suggest Greece will exit the eurozone.

This would have severe repercussions for the European banking sector, and possibly lead to a credit crunch of the type seen after the collapse of Lehman Brothers in 2008.

The Spanish banking system is already on its knees, and there are fears of contagion in Italy and possibly France.

German banks are being downgraded due to the expectation that eurozone growth will suffer substantially from a Greek exit.

So that is why the Greek candidates are household names across Europe.

There’s the US-educated Samaras from the Right-wing New Democracy party; Venizelos, an ex-finance minister of the socialist Pasok party, which had to go cap in hand to the IMF and its European partners to get Greece’s first bailout; and Tsipras, the charismatic young leader of the new radical-Left Syriza party, who rose from nowhere and originally pledged to tear up the bailout agreement.

Opponent: New Democracy party leader, Antonis Samaras

Tsipras now says he will just renegotiate it. He promises freedom from corrupt politicians, and growth and jobs for everyone.

Since the inconclusive election on May 6, the nation has been holding its breath to see what’ll happen next.

The political leaders have been interviewed in the wonderful sunshine, and discussions are calm and composed.

But storm clouds have been gathering â€" and may break tonight, when the exit polls are announced then the markets open in the Far East.

The apparent calm has been hiding the despair of many people who have lost their livelihoods and are suffering a fifth year of declining living standards.

Businesses are going bust at an alarming pace, unemployment is above 20 per cent â€" 50 per cent for 18 to 24-year-olds â€" and the suicide rate is soaring.

Basic services are paralysed, and medicines are scarce, with huge queues at pharmacies. Retail sales have plummeted, and many theatres and nightclubs are only opening at weekends.

People are driving a lot less, with petrol prices even higher than in the UK. Many parked cars have no plates â€" to avoid road-tax.

There is real poverty, and not just among the immigrant population that tends to use Greece as the point of entry into Europe.

I recently saw a notification that free food is being distributed at 103 locations in greater Athens, and 13 in nearby Piraeus.

The election should be seen as a play of two parts. The first part was in early May, when the Greeks voiced their objection to the two-party establishment â€" and the pain its policies had brought to the people â€" by simply voting against it.

Supporters: Waving the national flag, a crowd listens to Antonis Samaras at a rally

The second part is today â€" when they’ll voice what they want instead.

During the interval, they started to sober up. Opinion polls showed they wanted a coalition or unity government to take the country through a transition period.

In that time, the political system would reinvent itself and deal with the national realities.

Those realities are sinking in fast. The reaction from Europe to the inconclusive result of the first election â€" with stock markets crashing, the euro weakening and talk of a possible forced Greek exit â€" have sobered the mood.

It’s also become increasingly clear that some of the Syriza’s pledges are absurd, such as financing the public sector from people’s bank-savings. It is also calling for Greece to remain in the euro â€" without austerity measures.

Protest: Greeks show their anger at the austerity measures introduced as part of a bailout of the country's debts

The majority of the Greeks do want to stay in the euro. They never saw their vote as ‘staying or exiting’ the single currency.

Last week, whatever money was left in Greek bank accounts and had not been moved abroad (a lot was invested in prime London properties), was being withdrawn in a panic and kept under mattresses â€" as the prospect of a return to the drachma and capital controls were discussed openly for the first time.

Arguably the Greeks should not have rushed to elections so soon after the previous prime minister, and former chief banker, Papademos, had negotiated the second bailout.

It would have been much better to have done what the Italians are doing. There, elections will not be held until next year, to allow for the measures Mario Monti is pushing through to be implemented.

In Greece there has been no effective government for months. And whatever happens today, the Greek fundamentals will not change overnight.< br />

After joining the euro by fiddling its figures (in the full knowledge of its European partners), Greece did not invest in productive capacity, and lost competitiveness.

The public sector grew to vast proportions, with many workers being recruited as political favours.
Corruption became endemic, tax avoidance and evasion the norm and public spending span out of control.

So when the crisis hit, Greece had nothing to fall back on.
It is anyone’s guess what will happen today, as no official polls have been allowed for two weeks.

Unofficial polls by betting firms show New Democracy and Syriza are neck and neck.

My hunch is that the Right-wing New Democracy party, which led Greece through the period when a boom disguised the underlying problems, will win â€" just.

It would then receive an extra 50 seats, due to the peculiarities of the system, and form a coalition with the socialist Pasok.

Whatever happens, the new government will have to renegotiate the bailout agreement, as the  targets given to them by the IMF are too stretching.

And Greece will probably stay in the euro, as the cost to Europe would be more than if it stayed.
Yes, there’ll be further defaults. But as long as Greece can demonstrate it is prepared to reform, the money will come in.

The alternative is too frightening. If Greece leaves, the markets will assume it is just the start, and other countries will follow. That would be the end of the ‘euro project’.

And Europe has realised that Greece’s problems are not unique, and that the fundamental flaws of a poorly thought-out project must be fixed â€" rather than expelling naughty members when they misbehave to frighten the others into submission.

VIDEO: Samaras receives mandate to form government 

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