Tuesday, June 19, 2012

Greece avoids 'Drachmageddon' but crisis remains

The pro-bailout New Democracy Party, led by Antonis Samaras, won the biggest vote in Greece's national election Sunday. Samaras has proposed creating a coalition government to help the struggling nation remain in the eurozone. NBC's Stephanie Gosk reports.

By msnbc.com staff and news services

Greece appeared to have avoided crashing out of the euro currency zone early Monday after political parties in favor of an international bailout deal won a slim election majority ? but the region?s debt crisis showed no sign of abating.

Antonis Samaras, leader of the conservative New Democracy party, said he was confident of forming a coalition as he announced talks with?leaders of all parties "that believe in Greece's European orientation and the euro."

Foreign leaders reacted positively to the result, viewed as crucial in holding the joint currency together, and there was a brief rally on Europe?s money markets.?

Arriving at the G20 summit meeting in Mexico, Italy?s Prime Minister, Mario Monti, said: ?This allows us to have a more serene vision for the future of the European Union and for the eurozone.?

However, fresh worries over debt problems in Spain and Italy wiped out the market gains. Spanish 10-year government bond yields rose to 7.14 percent, pushing the nation's implied borrowing costs to their highest during the euro's lifetime. Italian 10-year bond yields also rose to 6.08 percent. Seven percent is widely seen as an unsustainably high cost of borrowing.

Citigroup analyst Jurgen Michels said on Monday that, even after the election result, the probability of Greece leaving the euro over the next 12 to 18 months remained at between 50 and 75 per cent, according to Business Insider.

Struggling Greece remains deeply divided over whether to implement a harsh austerity package, the price for receiving a total of $300 billion in bailout money from the European Union and the International Monetary Fund to save its near-bankrupt economy.?

Right-winger re-elected despite assault trial
The radical left, anti-austerity SYRIZA bloc won 27 per cent of the vote ? only 2.7 percentage points less than New Democracy, while the ultra-right wing Golden Dawn party also enjoyed success despite its spokesman, Ilias?Kasidiaris, facing trial for assault after slapping a female rival during a live television debate.

Andreas Solaro / AFP - Getty Images

Ilias Kasidiaris, member of Greek Parliament and spokesman of extreme-right ultra nationalist party Golden Dawn looks on during a pre-election rally in Athens on Friday.

Kasidiaris was re-elected in Sunday?s poll, according to?Bojan Pancevski?, a reporter for Britain's Sunday Times.

"My biggest fear is of a social explosion," a senior adviser to Samaras told Reuters on Monday. "If there is no change in the policy mix, we're going to have a social explosion even if you bring Jesus Christ to govern this country."?

Despite pro-bailout parties winning a majority in parliament, actual votes for Greece's anti-bailout parties added up to 52 percent.

Samaras now faces the awkward task of convincing the center-left PASOK movement to join a coalition charged with implementing highly unpopular spending cuts and privatizations, while the economy nosedives.?

The streets of central Athens are scarred after repeated waves of protests, some hospitals are running short of vital medicines, thousands of businesses have closed, beggars and rough sleepers are multiplying and suicides are rising.?

Under the terms of the international bailout, the new government must fire up to 150,000 civil servants, slash spending by 11 billion euros this month, sell off a swath of state-owned companies, improve tax collection and open closed professions to competition.?

A PASOK-New Democracy coalition would be guaranteed a parliamentary majority thanks to a quirk of Greek electoral law which gives the winning party a bonus of 50 extra seats. But that will not win the argument on Greece's streets.?

The Greek economy is expected to shrink by 5 percent this year after contracting 7 percent last year and unemployment is running at almost 23 percent. Many economists believe that the harsh austerity measures will only make matters worse in the short term.?

'Fight' goes on for leftists
PASOK leader Evangelos Venizelos has previously said he would only formally join a coalition if SYRIZA did so as well, something which is politically impossible, given the radical left bloc's unstinting opposition to the austerity measures.?

Greek analysts noted that SYRIZA's charismatic 37-year-old leader, former student communist Alexis Tsipras, conceded defeat quickly in a phone call to Samaras, apparently relieved he was free of the pressure to form a government and make compromises.?

"From Monday we will continue the fight," Tsipras told cheering supporters in an open-air square outside Athens university. "...the next government after this one will be a left government."?

"We will fight to topple these policies," the youthful crowd chanted back as loudspeakers played World War Two Greek Communist resistance songs.?

Filippos Nikolopoulos, a sociology professor at Crete University and SYRIZA supporter, said that Tsipras's fans were jubilant because they had won new force and authority by increasing their share of the vote so much on Sunday.?

"We want Europe, we want to cooperate," he said. "But we do not want to be subjugated by (German Chancellor) Mrs. Merkel."?

Stathis Stavropoulos, a newspaper cartoonist famous for his drawings depicting German officials preaching austerity at Greece as Nazi taskmasters, said the new conservative government would have the people of Greece against it from the outset.?

"Our dream of European Union was very different," he told Reuters. "It was a union of countries and peoples, not a union to serve banks and not a Fourth German Reich."?

Financial markets had feared a victory for SYRIZA, and New Democracy?s win prompted a surge in shares in early trading on Monday.

"It's a temporary rally but we're seeing broad gains because the global situation has changed now that the prospect of a 'Drachmageddon' has disappeared," said Fumiyuki Nakanishi, general manager of investment and research at SMBC Friend Securities in Tokyo.

Reuters and msnbc.com's Alastair Jamieson contributed to this report.

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