Greece in deeper crisis amid rescue deal doubts


Greece in deeper crisis amid rescue deal doubts

Greece in deeper crisis amid rescue deal doubts

Wednesday, May 9, 2012
  • alex
Tsipras is definitely against the austerity measures decided by the outgoing government.
ATHENS: Athens raised the prospects Wednesday of renegotiating a hard-earned rescue package after an election in which voters roundly rejected austerity measures, raising fresh doubts over Greece's eurozone membership.

The head of the radical left-wing Syriza party charged with forming a government is planning to write Wednesday to the highly indebted nation's international lenders telling them that the country would renege on its austerity commitments.


Even the outgoing coalition Pasok and New Democracy that had signed off the agreement are beginning to suggest that the EU-IMF deal would have to be renegotiated.


The uncertainty sent markets and the euro tumbling, as fears resurfaced of Greece quitting the eurozone before the year is out.


Questions also surfaced if international lenders would go ahead with the promised loans to save the country from default if Athens is not prepared to deliver on its promises.


Syriza chief Alexis Tsipras has two more days to form a coalition, with meetings due Wednesday with the leaders of Pasok and New Democracy. But Tsipras has already made his position against the austerity measures clear.


"The public verdict has clearly nullified the loan agreement and (pledges) sent to Europe and the IMF," the 37-year-old said in a televised address on Tuesday.


"Citizens have crushingly voted against the barbaric policy of loan agreements. They put an end to plans for 77 new austerity measures in June, plans to lay off 150,000 civil servants, and to additional measures worth 11.5 billion euros ($15 billion).


"This was a mature, conscious political choice," he said.


But the anti-austerity rhetoric is also throwing doubts on whether lenders will release desperately-needed loans due at the end of this week.


"There are questions on securing" the latest tranche of rescue loans, said Gikas Hardouvelis, economic advisor of outgoing Prime Minister Lucas Papademos on Skai Radio.


"Why would they give us money?" if Greece deviated from its commitments, Hardouvelis noted.


According to daily Kathimerini, the European Commission has confirmed that the 5.2 billion euro trache would be approved, though news website To Vima speculated that the EU may decide to hold back on the payment to pressure Greece during its power transition.


Greece is due to receive another 98 billion euros in outstanding loans agreed under the second bailout package, which includes 130 billion euros in fresh loans and another 107 billion euros wiped off by private creditors.


In its fifth year of recession with unemployment at 20 per cent, Greece is committed under the previous government to finding by June another 11.5 billion euros in savings over the next two years.


French Foreign Minister Alain Juppe said the situation "is extremely difficult, extremely tense."


"The result of the elections showed a very strong reversal for the two governing parties and an increase of extremes, so it is extremely worrying," he told Europe 1 radio.


Although his party came second in the polls, Tsipras was given the task of forming a government as the first-ranked conservative New Democracy party failed to get one together.


Sunday's general elections did not produce a clear winner but gave an overwhelming boost to Syriza which now has 52 deputies in parliament, and also gave neo-Nazis seats for the first time in decades.


New Democracy and socialist Pasok, now only have a combined 149 MPs in the 300-seat parliament.


Even assuming that Syriza and other anti-bailout parties could overcome their gaping differences, they can only muster 151 votes, enough for just a razor-thin majority in parliament.


The Communist party, which has 26 seats, on Tuesday refused to cooperate.


A deadlock was increasing likely as neither New Democracy nor Pasok were expected to do a deal with Tsipras.


A new government has to be formed by May 17 or new elections will be called.


Tokyo closed at a three-month low, tracking a poor showing in US markets, with the Dow Jones Industrial Average giving up almost 200 points at one stage until a late buying rally minimised the day's losses at 76.44 points.


Interest rates on 10-year German bonds fell Wednesday to a historic low of 1.530 percent, amid a flight to safety.


Greece's cost of borrowing jumped on Tuesday as it sought to raise 1.3 billion euros ($1.7 billion) in a sale of six-month treasury bills, with it paying 4.69 per cent to investors, up from 4.55 per cent at the last equivalent sale on April 10.


"The failure of the Greek election to produce a new government provides some support to our view that Greece could leave the eurozone as soon as the end of this year," London-based Capital Economics said in a note.