Greece heads for early election, stoking financial concerns

December 29, 2014

ATHENS, Greece (AP) — Greece's government was forced on Monday to call early national elections, stoking financial concerns as investors worry the main opposition party will win — and want to renege on the country's bailout deal.

The Athens stock market closed 3.9 percent lower, recovering from an earlier 11.3 percent plunge on news of the election, which was triggered by parliament's failure to elect a new Greek president. Investors fear the left-wing opposition Syriza party, which has a narrow but steady lead in opinion polls, might act on popular resentment at six years of government austerity by seeking to overhaul the international bailout deal.

At the height of the eurozone crisis in 2010-2012, Greece's financial turmoil risked breaking up the currency union, an event which would have shaken the global economy. The risks today are not as great, analysts say. For one, little of Greece's debt is held by private investors around the world, but mainly its bailout creditors, the International Monetary Fund and other eurozone countries.

Also, the European Union and European Central Bank now have programs meant to stabilize markets and support confidence in eurozone markets. "Due to the policy advances made, the safeguards that have been put in place, and the ECB's stated public commitment to doing whatever is necessary to keep the eurozone together, events in Greece now pose much less of a threat to the eurozone" than a few years ago, IHS Global Insight economist Howard Archer said in a note.

However, should a new government seek changes to the deal, Greece's access to credit would be delayed just as its bailout loans are coming to an end. Greece still cannot finance itself independently on bond markets, so it faces the danger of a default that could hurt the finances of fellow European countries.

Prof. Hendrik Vos, a Europe expert at Ghent University, said the prospect of Greece being forced out of the eurozone appears unlikely. "It is not in the interest of Greece itself and Syriza, too, is not asking for this," he said. "The other member states don't want it either. ... The uncertainty that comes with kicking a country out and not really knowing how, where it will all end — those same arguments still apply today."

The IMF said Monday a current review of Greece's bailout program — upon which depends the payment of the next batch of rescue loans — will resume only after the new government is in place. It said Athens faces no immediate financing needs, however. The review has been stalled for months due to disagreements on new spending cuts.

Greek conservative Prime Minister Antonis Samaras said national elections, the fourth in six fraught years of financial crisis, will be held "at the soonest possible date" — Sunday, Jan. 25, 18 months early.

"The country has no time to waste," Samaras said in a televised address after the presidential vote. "The people must learn the truth about how easy it is to relapse into the deepest and most dramatic crisis."

In Monday's presidential vote, his coalition's candidate for the post, 73-year-old former European commissioner Stavros Dimas, garnered 168 out of 300 possible votes— short of the 180 needed to win. It was the third and final round of voting. According to the constitution, the vote's failure means parliament has to be dissolved within 10 days.

Syriza has pledged to roll back some of the reforms Greece implemented to qualify for 240 billion euros in rescue funds. But it has recently softened its rhetoric about unilaterally pulling out of the bailout deal.

Syriza leader Alexis Tsipras said Monday's vote marked a "historic day for Greek democracy." "Today Mr. Samaras' government, which for two and a half years plundered our society and had already decided and committed to take new (austerity) measures, belongs to the past," Tsipras said. "With the will of our people, in a few days, the austerity agreements will also belong to the past."

Speaking later at a party gathering in Athens, Tsipras pledged that, if elected, he would guarantee "without footnotes or asterisks" all deposits in Greek banks — despite past comments by other Syriza officials suggesting that large private bank accounts could be used to fund welfare spending.

Amid chants of "The time of the Left has come," Tsipras also voiced confidence that European officials appear prepared to deal with a new Greek government. But German Finance Minister Wolfgang Schaeuble warned that Greece "has no alternative" to the hard reforms it has undertaken.

"If Greece takes a different path it will become difficult," he said, commenting on Monday's developments. "New elections change nothing about the agreements that the Greek government has entered into. Any new government must stick to the contractual agreements of its predecessors."

Greece lost market confidence and nearly went bankrupt in 2010, after years of profligate spending, dodging public sector reforms and hiding the extent of its bloated public finances. The bailouts kept the country afloat, but drastic belt-tightening demanded by the EU and IMF hammered incomes and living conditions, sending unemployment to a post-World War II high. Ensuing resentment fuelled support for anti-austerity parties, from Syriza — whose pre-crisis support was under 5 percent — to the neo-Nazi Golden Dawn.

Samaras, 63, presided over a historic coalition that united his conservative party with their historic socialist rivals to hammer out further draconian spending cuts that balanced the budget after decades and led to a modest economic recovery this year.

Derek Gatopoulos in Athens, Frank Jordans in Berlin, and Raf Casert in Brussels contributed to this report.