ATHENS--Greek voters broke months of political stalemate by narrowly
endorsing pro-bailout forces in a momentous election, easing fears of
an imminent rupture with the euro zone--for the moment.
The result, giving the pro-austerity conservative and socialist
parties enough votes to form a fragile and awkward ruling coalition,
won't erase the immense problems that face Greece and the euro zone,
both apart and together.
But the showing by the conservative New Democracy party, which came in
first and has pledged to continue cooperating with Europe, was enough
to skirt two outcomes policy makers and investors feared far more: a
win by the anti-bailout leftist Syriza party, or a confused muddle
that left Greece hobbled by political infighting.
"Among the realistic scenarios, it is the best case," said Alberto
Gallo, head of European macro credit research at Royal Bank of
Scotland in London. "It reduces the risk of deposit flight in the
banking system." But he added: "By itself, it does not solve Greece's
problems."
Analysts expect markets to turn positive Monday, in relief that the
euro zone's crisis didn't end in calamity Sunday. There were some
initial signs in early Asian trading: Japan's Nikkei average climbed
2.2%, while U.S. stock futures rose and the euro jumped nearly a penny
against the dollar.
For more than two years, the debt crisis has made plain that the euro
zone has deep and abiding structural problems--problems that will take
years to fix if they can be fixed at all. But amid the gloom,
financial markets have been buffeted by short-lived bouts of optimism
and pessimism as investors jump into and out of the assets in Europe's
risky periphery. Heading into the election, many analysts had warned
of the risk of a bank run in Greece if the results portended a
hastening break with Europe--or a spread of financial fear into the
queasy banking system of Spain, which just a week ago said it would
ask for a EUR100 billion bailout to recapitalize its lenders.
The vote's outcome is likely to spur some near-term gains for
beaten-down euro-zone assets. But Spain, for instance, has been
battling a steady, longer-term erosion of demand for its government
bonds from foreign investors--a trend that has been stubbornly
difficult to reverse.
With 99% of ballots counted Sunday night, New Democracy had 30% of the
vote, compared with 27% for Syriza.
New Democracy leader Antonis Samaras, in line to become prime
minister, cast his party's narrow win as a foundation for
rapprochement with Europe. "We will respect our signature and the
country's obligations," Mr. Samaras said at a postelection news
conference, surrounded by cheering supporters. He called on other
parties to join him in a "national salvation" coalition government.
"With [the Greeks'] vote, a solid base of a new unity is formed, which
is going to have European orientation," he said, speaking in Greek.
Then he repeated his speech in English.
Mr. Samaras can't take much time to enjoy his victory. His party
garnered enough for 129 seats in Greece's 300-seat parliament. That
figure is higher than many had expected, but he still needs the
cooperation of his longtime rivals, the Socialist Pasok party, to form
a pro-Europe coalition. That appeared probable late Sunday; Syriza's
leader, Alexis Tsipras, said his party would remain in opposition.
In a way, the Samaras win sends the ball back into Europe's court--and
particularly into Germany's. German leaders had not shied away from
urging Greeks to cast their ballots for continued engagement, or from
warning the Greeks of the consequences of not doing so.
Now that Greece has chosen engagement, all eyes turn to Germany for
any possibility of giving Athens some concessions. Even Mr. Samaras
has pledged to Greeks that he will secure some relief from the tough
measures. Syriza's strong showing--about 10 percentage points above
the party's performance in May's inconclusive elections--suggests many
remain hostile to the European plan despite broad support for staying
in the euro.
Berlin sent some conflicting messages after the vote. Chancellor
Angela Merkel called Mr. Samaras to congratulate him but her office
said she "expected Greece to stick to its European commitments," while
Finance Minister Wolfgang Schauble said in a statement there would be
consultations to "work toward making the adjustment program succeed."
The Europeans have insisted that Greece find EUR11.5 billion in fresh
budget cuts for the coming years by the end of this month. If that
goal stays, Mr. Samaras may not have the political strength to make
those cuts and keep his infant government alive.
That would thrust Greece back into another cycle of political
chaos--and surely strengthen Mr. Tsipras's hand.
On Greece's debt repayments, "I could imagine that we do something
about the time frame," German Foreign Minister Guido Westerwelle said
on German television channel ZDF.
But Greece is almost certain to want more than modifications of the
debt-repayment schedule. For one thing, a restructuring earlier this
year delayed repayment on its private sector debt by at least a
decade, and much of what it owes other euro-zone countries doesn't
fall due for many years hence.
What most Greeks want now is a break from the relentless budget cuts
that have helped drive its economy further into recession. Reversing
budget cuts in the near term means more money from Germany.
Mr. Samaras will face his first test in the coming weeks, when he'll
have to begin talks with bailout monitors from the European Union and
the International Monetary Fund.
Those parties have signaled a tough course. One EU official said the
electoral campaigning has diverted attention from reforms and pushed
the budget off track. "There has been a further deterioration in the
fiscal position of the country," this person said.
Still, financial markets are expecting bargaining. There is widespread
agreement among investors and economists that the European program of
stiff budget cuts while paying back a staggering mountain of debt is
unsustainable. "Of course they've got to renegotiate," said Paul
Donovan of UBS in London. "This is an unworkable situation Greece
finds itself in."
Mr. Donovan and others say European leaders have missed a chance, with
the Spanish bailout in particular, of using the crisis to put in place
structures that tie the euro zone more closely together--and thus make
each country more responsible for its peers' situation. "In
negotiating with the Greeks, what markets would like to see is some
move toward further integration within the euro zone," he said.
With France and Germany and other countries at odds about the path
forward, that still seems a distant hope.
"We're not closer to a grand solution," Elsa Lignos, London-based
currency strategist for RBC Capital Markets said. "This maintains the
current environment. There was a lot of focus on what would happen
with this election, in some ways, if we'd had a Syriza win, the market
would simply sell risk and sell euros."
She added, "Ultimately, nothing has fundamentally changed. Euro-zone
membership is still an open question for Greece."
Most Greeks, however, are heavily in favor of remaining in the euro, a
sentiment reflected by Sunday's vote--and the sense of relief that
came over Athens after the results were announced. An oppressively hot
day softened into a breezy summer night that was ample evidence of
Greece's considerable charms, economic calamity or not.
Cars honked and people milled about central Syntagma Square. If the
jubilation didn't match that expressed the night before, when Greece
improbably defeated Russia to earn a berth in the quarterfinals of the
European soccer championships, it was, at least, more buoyant than
most.
Tonia Pavlidi, from the northern Athens suburb of Maroussi, cast her
ballot for New Democracy.
Ms. Pavlidi has a seven-year-old son. "I want him to be Greek, and a
European citizen. I want him to have the same opportunities as every
other kid in Europe," she said. "I will fight for this."
Gordon Fairclough, Matina Stevis, William Boston and Tom Lauricella
contributed to this article.
-Write to Charles.Forelle@wsj.com
(END) Dow Jones Newswires
June 17, 2012 18:15 ET (22:15 GMT)
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