Greek political crisis heightens as talks fail

Greek Socialist party leader Evangelos Venizelos (left) ends a meeting Friday in Athens with New Democracy party leader Antonis Samaras as efforts to form a government continued in vain.
Greek Socialist party leader Evangelos Venizelos (left) ends a meeting Friday in Athens with New Democracy party leader Antonis Samaras as efforts to form a government continued in vain.

— Deeply divided over the value of austerity measures, Greek politicians failed Friday to form a new coalition government, leaving only one more meeting with the country’s president before new elections are scheduled for June.

Socialist party leader and former Finance Minister Evangelos Venizelos, the third party leader this week to fail at the task, said he would hand the mandate back to the president today. The president will then bring all party leaders together in a last-ditch attempt to create a coalition.

The political instability has alarmed Greece’s European creditors, who have warned that the country’s international bailout loans and its membership in the17-nation eurozone could be threatened.

Greece has plunged into political turmoil since elections Sunday gave no party enough seats in Parliament to form a government. Voters furious at two years of harsh austerity measures taken in return for international bailouts worth $310 billion rejected Greece’s two formerly dominant parties, the socialist PASOK and the conservative New Democracy, in favor of myriad smaller parties on the left and right.

The anti-bailout Radical Left Coalition, or Syriza, led by Alexis Tsipras made the most gains, coming in second with 16.8 percent of the vote and 52 seats in the 300-member Parliament, campaigning on a pledge to overturn the austerity measures.

Tsipras has refused to join any coalition government that says it will implement the bailout deal.

“The rejection of this plan does not come from Syriza but was given by the Greek people on the night of the election,” Tsipras said after no solution was reached in his Friday night meeting with Venizelos. “The bailout austerity has already been denounced by the Greek people with its vote, and no government has the right to enforce it.”

The other political leaders insist his policy is irresponsible and will force Greece out of the euro, but also say his party is essential in any power-sharing deal after coming in second in the election.

German Finance Minister Wolfgang Schaeuble suggested the eurozone could deal with an abrupt Greek exit.

“We have learned a lot in the last two years and built in protective mechanisms,” Schaeuble told the Rheinische Post newspaper. “The risk of effects on other countries in the eurozone have been reduced and the eurozone as a whole has become more resistant.”

Greek President Karolos Papoulias could still manage to break the deadlock, but chances appear slim.

“I hope that during the negotiations chaired by Mr. Papoulias everyone will be more mature and responsible in their thinking,” Venizelos said.

The failure to create a coalition rocked the Athens stock exchange, which fell 4.52 percent Friday even before news of the failure to reach an agreement broke.

The exchange fell every day this week except Thursday.

Greece has been dependent since May 2010 on rescue loans from other European Union countries that use the euro and from the International Monetary Fund. In return, Athens has imposed repeated rounds of spending cuts and tax increases, leaving the country in a fifth year of recession with unemployment above 21 percent.

Tsipras could be looking forward to a new election, analysts suggested. One opinion poll showed that his party would likely come in first in a new ballot, although with not enough votes to form a government by itself.

The Fitch ratings agency warned that the outcome of the coalition talks or a new election would be critical.

“The election or formation of a Greek government unwilling or unable to abide by the terms of the current EUIMF program would increase the risk of Greece leaving the eurozone,” Fitch said.

The agency said that if Greece did leave the euro, it would likely place all 16 remaining euro nations’ sovereign ratings on “rating watch negative” - indicating they were in danger of being downgraded.

“A Greek exit would break a fundamental tenet underpinning the euro - that membership of EMU is irrevocable,” Fitch said, referring to the European Economic and Monetary Union.

EU monetary affairs chief Olli Rehn stressed that Greece’s bailout terms were the only way the country could overhaul its economy.

“Greece systemically lived beyond its means for a decade. ... It is simply not sustainable and therefore Greece has had to take firm action to restore its economic competitiveness and sustainable public finances,” he said in Brussels.

EU officials said Friday that a recession brought on by a crippling debt crisis could give way to a modest recovery later this year - provided governments persevere on the tough austerity track.

It suggested that more growth-enhancing measures can be pursued alongside strict budgetary controls, but only as long as they do not detract from achieving deficit-reduction targets.

In its semiannual economic projections, the European Commission, the executive arm of the EU, said Friday that the economy of the 17 countries that use the euro will shrink by 0.3 percent this year.

The forecast reflects the huge impact in Europe that austerity measures, such as spending cuts and tax increases, have had on the region. In November, the commission was predicting growth of 0.5 percent in 2012.

Information for this article was contributed by Elena Becatoros, Derek Gatopoulos, Raf Caser, David Rising, Raf Casert and Pan Pylas of The Associated Press.

Front Section, Pages 1 on 05/12/2012

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