Greek election impasse heralds lengthy instability

[May 07, 2012]  ATHENS, Greece (AP) -- Bailout-reliant Greece faces weeks of financial turmoil after voters angry at crippling income cuts punished mainstream politicians, let a far-right extremist group into Parliament and gave no party enough votes to govern alone.

The one certainty coming out of Sunday's election was that parties backing the draconian international rescue package lost their majority in parliament -- raising the chances of a possible Greek exit from the common euro currency.

The uncertainty weighed on markets across Europe, with the Athens exchange tumbling 7.3 percent in midday trading.

Official results showed conservative New Democracy came first with 18.85 percent and 108 of Parliament's 300 seats. Party leader Antonis Samaras, who backs Greece's bailout commitments for austerity but has called for some changes to the bailout plan, will launch coalition-forming talks later in the day.

"I understand the rage of the people, but our party will not leave Greece ungoverned," Samaras said after Sunday's vote.

After receiving the mandate to start negotiations from President Karolos Papoulias, Samaras will have three days to strike a coalition deal. But that could prove impossible because even with the support of the only other clearly pro-bailout party elected, Socialist PASOK, New Democracy would fall two seats short of a governing majority.

If the deadlock does not ease, Greece faces new elections under a caretaker government in mid-June, about the time it has to detail new drastic austerity measures worth (EURO)14.5 billion ($19 billion) for 2013-14.

In June, Athens is also due to receive a (EURO)30 billion ($39.4 billion) installment of its rescue loans from the other countries in the 17-strong eurozone and the International Monetary Fund.

Analyst Vangelis Agapitos said protracted instability would threaten the country's eurozone membership. Greece's debt inspectors -- the eurozone, IMF and European Central Bank, collectively known as the troika -- could turn the screws by halting release of the bailout funds until Athens moves forward with its pledged reforms.

"Europe can live without Greece but I don't think Greece can live without Europe," he said. "If the troika is bluffing, Greece will remain in the euro. But if the troika says: `I can negotiate, but first show me some progress,' Greece has no progress to display right now."

"If the troika rattles our bars, then either the people will come to their senses at the next elections or the country will enter an alternative course, and when we open that door we will see what kind of chaos -- or paradise -- lies behind," Agapitos said.

Sunday's big winner was the anti-bailout Radical Left Coalition, or Syriza, whose unprecedented second place with 16.78 percent gives it 52 seats.

Disaffected voters deserted PASOK and New Democracy, the two mainstays of Greek politics, leaving them at their worst level since 1974, when Greece emerged from a seven-year dictatorship. Instead, strong gains were registered by smaller parties, including the extremist Golden Dawn, which rejects the neo-Nazi label and insists it is nationalist and patriotic.

Golden Dawn has been blamed for violent attacks on immigrants and ran on an anti-immigrant platform, vowing to "clean up" Greece and calling for land mines to be planted along the borders. It got 6.97 percent of the vote -- a stunning improvement from 0.29 percent in 2009 -- and won 21 seats.

The election was Greeks' moment to vent their fury over two years of austerity that Athens has been pushing through to qualify for bailout loans. Incomes, benefits and pensions have been slashed repeatedly and taxes hiked. Unemployment has soared to a record of over 21 percent.

"Citizens sent a very clear message that they don't want this (austerity) policy to continue," PASOK spokeswoman Fofi Gennimata said. "It was a very great defeat for us."

PASOK, which has spent 21 years in government since 1981 and stormed to victory with more than 43 percent in 2009, saw its support slashed to 13.18 percent. It will have just 41 seats, compared to 160 in the last election.

Sunday's turnout was 65 percent -- a low figure for the country, where voting is officially compulsory, although no sanctions are applied for not casting a ballot. A total of seven parties won representation.

Another four small parties fell just short of the three percent parliamentary entry threshold, getting just over ten percent between them.

Samaras is to meet Papoulias to strike a coalition agreement. He will then meet with the leaders of PASOK and Syriza, as well as the head of a smaller, more moderate left-wing party.

If he fails to form a government, the mandate will go to the second party for another three days, and then to the third party. If no deal can be reached by May 17, the country will hold new elections a month later.

"A nightmare of no government, with new elections looming in the background," Ta Nea daily said in its main headline.

Agapitos said Greeks on Sunday were carried away by their feelings.

"In the next elections, people will either come to their senses and look at their options ... and if that happens the most realistic proposal will win, but if the current tend continues, the lack of government will continue and things will become even more difficult," he said.

"I can see no good reason why anyone should want to invest in Greece when it doesn't have a government and it is unclear what strategy it will pursue."

The president of the European Parliament, Martin Schulz, said the election results needed to be analyzed calmly.

"The aim of negotiations in Greece should be to form a coalition that would stick to Greece's commitment to the European Union," Schulz said in Berlin. He noted the results emphasized the need for the EU to adopt a comprehensive package to stimulate economic growth.

Both Samaras and PASOK leader Evangelos Venizelos indicated any unity government would have to include more than just their two parties.

But in a note that will likely raise alarm among Greece's creditors, Samaras insisted any coalition should renegotiate the terms of the country's bailout.

"We are ready to take up the responsibility to form a new government of national salvation with two exclusive aims: For Greece to remain in the euro and to amend the terms of the loan agreements so that there is economic growth and relief for Greek society," he said.

Riding high on his gains, Syriza leader Alexis Tsipras, aged 38, stuck to his anti-bailout position.

"The people have rewarded a proposal made by us to form a government of the left that will cancel the loan agreements and overturn the course of our people toward misery," he said.

[Associated Press; By NICHOLAS PAPHITIS]

Raf Casert in Brussels contributed.

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