Greece edges closer to default as latest attempt at coalition government fails

McClatchy NewspapersMay 10, 2012 

— Another attempt to assemble a new coalition government in Greece collapsed Thursday, adding to concerns that the country won’t be able to continue with European Union-mandated austerity measures and instead will be forced into default and even expulsion from the euro currency zone.

Alexis Tsipras, the firebrand politician whose Radical Left coalition finished second in Sunday’s polls, gave up his attempt to form a leftist government opposed to the terms of an international Greek bailout. That followed the decision on Monday by the first-place finisher, Antonis Samaras of the right-of-center New Democracy, to abandon his attempt to form a pro-bailout coalition.

That leaves Evangelos Venizelos of the Socialist PASOK, who took a severe beating and finished third in the polls. But he has indicated that he has little hope of forming a stable government that would impose additional taxes and spending cuts as promised to the EU.

The only chance of avoiding another round of elections would be if centrist parties agree to a narrowly based government of national salvation. After an initial meeting with Venizelos, Kuvelis Fotis, leader of the splinter Democratic Left party, publicly indicated support for that option.

Leftists are almost certain to oppose it, however, and will probably take to the streets in protest.

New elections could be announced as soon as Sunday.

Tsipras, whose party almost quadrupled its support in the May 6 poll, rattled European leaders and scared off the two Greek centrist parties by calling for abandonment of the tough EU austerity program as well as for nationalizing the country’s banks.

But he continued to press his campaign Thursday, telling leaders of the three top European political institutions that the vote of the Greek population strips all legitimacy from the austerity accords, and it was time that the EU changed its strategy.

EU officials told reporters that they wouldn’t budge on the broad framework but indicated that tinkering on the margins could be possible.

German political leaders have issued a series of explicit warnings to the Greek government and public that they face a choice of carrying out agreed obligations or leaving the eurozone.

Wolfgang Schaueble, the German finance minister, warned Wednesday that Athens “cannot have the euro without the austerity agreement.” He said that if Greece “seriously observes its commitments, then we will observe ours as well. But if Greece decides not to stay in the eurozone, we are not able to coerce it into it.”

German Chancellor Angela Merkel warned Wednesday that agreements on more government spending cuts that Greece made with the EU, the European Central Bank and the International Monetary Fund “will have to be observed.” European Council President Herman Van Rompuy of Belgium said: “Greece has no alternative to austerity. Without it, there is no future for Greeks.”

Other European leaders were reported to be telephoning top Greek political figures to reinforce the message. But their problem lies with the Greek public, which is convinced that still more austerity will not reverse the deep three-year-long recession, and that the major political parties cannot be trusted to steer the country out of its economic abyss.

In a sign that more pain is coming, EU leaders decided to reduce a payment due to Greece in mid-May to 4.2 billion euros ($5.4 billion), down 1 billion euros ($1.3 billion). Greece needs the funds to pay foreign debt obligations that are due.

Its economy now shrinking annually, in part because of severe cuts in government spending, Greece now has an unemployment rate of 22 percent.

There is little question that the austerity measures undertaken already, and a series of new cuts due to take effect in June, have little public support.

“What people see is that since October 2009, when austerity was implemented, our debt increased from 115 percent to 165 percent of gross domestic product,” said Leonidas Vatikiotis, an independent economic analyst. “So Greece will never stop asking for loans like this. Moreover, there is no stability in public finance.”

He added that this same downward spiral applied to other countries that accepted austerity, such as Ireland and Portugal.

A measure of the public’s rejection of the course undertaken by the two centrist parties is that only 13 out of 35 ministers of the previous government were re-elected Sunday. PASOK and New Democracy saw their share of the vote reduced from a clear majority to just 30 percent, with the gains going to the anti-bailout parties.

Vatikiotis said that an all-out confrontation between pro- and anti- bailout forces may be approaching.

“Despite the enormous political costs paid by the political forces that represented austerity in Greece, this is still a priority for economic and political elites in Greece and Europe,” he said. But the “neglect demonstrated by the elites for the social costs created by this politics is worrisome. Society has rejected austerity politics in this election and could again do it in the coming one.”

Fotiadis is a McClatchy special correspondent. Gutman reported from Istanbul.

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