Greece Running Out Of Time To Form Coalition Government, New Elections Likely

 @Gooch700
on May 11 2012 9:15 AM
Leader of the Socialists PASOK party Venizelos meets leader of Conservatives New Democracy party Samaras in Athens
Leader of the Socialists PASOK party Venizelos meets leader of Conservatives New Democracy party Samaras in Athens Reuters

Greek political leaders are facing a final countdown in their hectic efforts to hammer out a deal for a new coalition government that can find some kind of consensus on how to address the country’s massive debt crisis.

If Pasok (Socialist) party leader Evangelos Venizelos cannot find common ground with Antonis Samaras, head of the conservative New Democracy (ND) party, and others, Greece’s future in the euro zone may be endangered and the Athens government could default on its debt, triggering a European-wide financial calamity.

Venizelos, who was entrusted with the job of creating a unity government after Samaras and the leader of the left-wing Syriza party, Alexis Tsipras, failed to do so, may also find it an insurmountable challenge.

A political deadlock would result in new snap elections sometime next month -- thereby creating even more anger and concern among Greece’s nervous lenders, particularly Germany.

Creditors have already warned Athens that it must abide by the strict terms of the huge bailouts it has received from the European Union and International Monetary Fund or face expulsion from the euro zone.

On Friday, Guido Westerwelle, Germany’s Foreign Minister warned: The future of Greece in the euro zone lies in the hands of Greece. We want to and we will help Greece, but Greece has to be ready to accept help. If Greece strays from the agreed reform path, then the payment of further aid tranches won't be possible. Solidarity is not a one-way street.”

Last weekend’s Greek elections has directly led to the current stalemate -- seven parties received enough votes to place their members in parliament, making it impossible for any one party (or even two parties) to form a majority that would allow some consensus on policy. Indeed, Venizelos’ Pasok party (which was formerly part of an uneasy alliance with ND in the prior administration) did so poorly in the vote that it finished in third place, behind ND and Syriza.

The fact that a party which only attracted about 14 percent of the vote is now responsible for forming a new government reflects the desperation of the situation.

On Thursday, Venizelos met with Fotis Kouvelis, the head of Democratic Left, which won a little more than 6 percent of last weekend’s vote. However, Kouvelis insisted that the far-left Syriza must be part of any coalition -- a scenario that would scuttle any hopes for Greece abiding by the terms of the EU/IMF bailouts.

Syriza, which gained almost 17 percent of the vote, has adamantly ruled out any austerity measures for Greece.

“It is clear… Syriza wanted elections,” Kouvelis told his party members on Friday.

“And without Syriza, a government cannot be formed that is in harmony with the popular will, representing the strength of each political party. We have made our position clear. In a government with (only) New Democracy and PASOK, we will not take part.”

Moreover, AP reporte that Syriza could win a new round of elections, with almost 28 percent of the vote – meaning a new poll would likely doom Greece’s ability and willingness to repay loans as well as its membership in the euro zone.

Some analysts believe it may already be too late for Greece.

Ben May, an economist at London-based Capital Economics, lamented that Venizelos will probably fail to reach a coalition consensus, which would lead to another election in mid-June.

May paints a doomsday scenario, indicating Athens may soon run out of money.

“If Greece receives no further bailout payments, the finance ministry has indicated that it might run out of money by the end of June,” he said.

“Even if a new pro-bailout government is in office by mid June, further loan payments may not be released until July or beyond. The troika [EU/IMF/ ECB] will want Greece to meet at least some of the conditions of the bailout before lending any more money.”

Venizelos met with Samaras on Friday morning, but did not make any public statements about their discussion. The Pasok chief will meet with Tsipras later.

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