Greeks Back European Bailout
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.
() - Leader of conservative New Democracy party Antonis Samaras is cheered by supporters after his statement on the election results in Athens.
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.
People vote inside booths during the elections in Thessaloniki.
"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: Hong Kong's Hang Seng Index gained 1.5% and Tokyo's Nikkei was up 1.8%. U.S. stock futures rose and the euro jumped against the dollar to $1.2714.
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 €100 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.
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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.
A New Democracy supporter cheers at its election headquarters in Athens as exit polls put his party out front.
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 €11.5 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."