Anti-bailout party rejects Greek austerity pledge

NICHOLAS PAPHITIS
Last updated 07:29 09/05/2012

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Sparks ignited in Europe's austerity debate as the left-wing politician struggling to form a new Greek government declared that his country was no longer bound by its pledges to impose crippling cutbacks in return for rescue loans.

The comments by Alexis Tsipras came two days after Greek voters vehemently rejected mainstream pro-austerity politicians, backing a hodgepodge of parties from the Stalinist left to the neo-Nazi right but producing no clear winner in parliament.

Tsipras also demanded an examination of Greece's still-massive debt and a moratorium on repayment of the part of it that is "onerous," statements that rattled investors and drove Greek shares down another 3.6 per cent on top of Monday's nearly 7 per cent loss.

"The pro-bailout parties no longer have a majority in parliament to vote in destructive measures for the Greek people," said the 38-year-old Tsipras, whose anti-austerity Radical Left Coalition party came second in Sunday's vote. "The popular mandate clearly renders the bailout agreement invalid."

Tsipras is the second Greek party leader in as many days to try to form a government. If no coalition can be found, elections will be held in a month, with the political instability boding ill for Greece's hopes of keeping solvent and within the 17-nation eurozone.

Moving to stomp out signs of increasing discontent in crisis-hit countries, the European Union and Germany — the biggest contributor to the EU's crisis fund — urged members overnight (NZ time) to stick to their agreed budget cuts.

"The end of the debt policy has been agreed in Europe. It has to stay that way," said German Foreign Minister Guido Westerwelle, while European Commission President Jose Manuel Barroso stressed that member states must implement their promised spending cuts and tax hikes.

Both offered the consolation of new growth-boosting drives to revive struggling economies. EU President Herman Van Rompuy called for an informal summit of the EU's 27 leaders on May 23 to discuss economic growth and to prepare for a summit in June focused on job creation.

Tsipras's party came second Sunday, winning 52 of parliament's 300 seats with 16.8 per cent of the vote. He has the presidential mandate to end the political impasse by forming a governing coalition by Thursday.

Antonis Samaras, head of the winning conservative party that has 108 seats, gave up on the same task after just a few hours Monday when Tsipras spurned his advances.

Tsipras said his government-building drive would focus on ending "the loan agreements of subservience" with Greece's international bailout creditors.

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Greece has depended on rescue loans from its European partners and the International Monetary Fund since May 2010, after decades of profligate state spending and false accounts priced it out of money-lending markets.

To secure the bailouts, Athens took a hatchet to pensions, salaries, healthcare and pretty much everything else, while repeatedly hiking taxes. But more than two years of austerity have left the economy deep in recession and unemployment at a record high 21 per cent.

Tsipras urged Samaras and third-placed Socialist leader Evangelos Venizelos to renege on their support for the bailout commitments, asking them to "honestly repent for their disastrous choices that tore our society apart."

Greece has promised to pass new austerity measures worth €14.5 billion (NZ$23.9 billion) next month and quickly implement other reforms. These will promptly be reviewed by its creditors, who will then decide whether to release or withhold the next batch of bailout funds.

But Samaras quickly blasted Tsipras' proposal as "unbelievably arrogant," warning it would "drag the country into chaos" and see it expelled from the euro.

"Mr. Tsipras is doing everything to prevent a government being formed," Samaras said. "Nothing can be done if we leave the euro, because the country's catastrophe would be certain and unprecedented."

He added: "He is asking me to place my signature on the destruction of Greece — and that I will not do."

Analysts agreed that Tsipras was wading into dangerous waters. Athanasios Vamvakidis, a strategist at Bank of America Merrill Lynch, said Greece's rescue creditors are unlikely to agree easily to a renegotiation of the two bailout programs worth €240 billion (NZ$396b).

Just two months ago, banks and other private creditors wrote off over €100 billion (NZ$165b) in Greek debt — the largest debt writedown in history.

"Any relaxation of targets would likely need even more official funds for Greece. In our view, this would be politically almost impossible to approve by the rest of the eurozone," Vamvakidis said in a note to investors.

However, other analysts suggested that the eurozone and IMF could give Athens a minimal lifeline of credit while Greece sorts out its political impasse or holds new elections.

But even then, there is little reason to believe that angry Greek voters would change their minds in a second ballot and give a comfortable majority to the pro-austerity parties New Democracy and PASOK, said Neil Mellor, an analyst at the Bank of New York Mellon.

He said even if the two eked out a slim majority in the next election, they could not enforce the current bailout terms.

"With the prospects of a stable coalition emerging from such a splintered and fragile backdrop seemingly implausible, it would appear that the onus on flexibility may nonetheless lie with Greece's creditors if the standoff is to be resolved," said Mellor.

Tsipras received a first pledge for support from a small leftist party Tuesday, whose leader, Fotis Kouvelis, stressed that he wants to keep Greece in the eurozone but "disengage from the bailout ... taking advantage of the more favorable framework shaping up in Europe."

Dimitris Mardas, an associate professor of economics at Thessaloniki University, told The Associated Press he believed there was room to negotiate a coalition government.

"They are professionals, not children," he said.

But it would be mathematically impossible for Tsipras to govern without the support of Samaras' conservatives, because the isolationist Communists who have ruled out any participation in government and no party will work with the neo-Nazi Golden Dawn.

If Tsipras fails, the mandate would then pass to Venizelos. If he is also unsuccessful, party leaders will hold a final effort to reach consensus, and if nothing comes from that, elections will take place within a month.

"The country does not really have time or efforts to waste. It is absolutely necessary for Greece to have a new government," said New Democracy deputy Aris Spiliotopoulos. "No one is prepared for a Greek failure, or even a Greek eurozone exit."

- AP

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