Hopes fade for Greek coalition deal

Hopes fade for Greek coalition deal

Greece’s wrangling politicians were locked in last-ditch efforts today to form a coalition government, with chances of a deal appearing slim.

The political instability has alarmed Greece’s European creditors, who have warned that the country’s international bailout loans and its use of the euro could be threatened.

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

Greeks punished both main parties in Sunday’s elections for their handling of the country’s financial crisis and the deep austerity measures they had to accept to get bailout loans. Voters instead chose a myriad of smaller parties on the right and left, leaving a hung parliament.

Unless an agreement is found, Greece will hold new elections next month.

Hopes for a three-party deal between election winner conservative New Democracy, the third-place Socialist PASOK party and the small Democratic Left party of Fotis Kouvelis diminished today when Kouvelis insisted he could not participate in a government with just the country’s two main parties.

“We have made our position clear. In a government with (only) New Democracy and PASOK, we will not take part,” Kouvelis said.

Chances of a deal seemed to hinge on the position of election runner-up Alexis Tsipras, whose anti-bailout Radical Left Coalition, or Syriza party, made massive gains in the election, winning 16.8% and 52 seats in the 300-member parliament.

Kouvelis, whose party’s 19 seats put it in a kingmaker position, insisted Syriza must be part of any governing coalition.

“It is clear from its reaction that from the first moment, Syriza wanted elections,” Kouvelis told his MPs. “And without Syriza, a government cannot be formed that is in harmony with the popular will.”

So far, Tsipras has refused to join any government that does not reject the austerity terms of Greece’s bailout, saying the spending cuts and tax cuts are destroying the country’s chances of recovering from its deep financial crisis.

Greece has been dependent since May 2010 on rescue loans from other European Union countries that use the euro and the International Monetary Fund.

In return, Athens has imposed repeated rounds of spending cuts and tax hikes, leaving the country mired in a fifth year of recession with unemployment above 21%.

Tsipras could have his eye on a repeat election, with an opinion poll published yesterday showing his party would likely come first in a new ballot, although with not enough votes to form a government itself.

Both New Democracy head Antonis Samaras and PASOK’s Evangelos Venizelos, who spent nine months handling the Greek crisis as finance minister, have warned that Tsipras’ demands for Athens to pull out of its bailout commitments would be disastrous and lead Greece out of the euro.

The vast majority of Greeks, and the leaders of the main parties, all want Greece to remain within the joint European currency.

Venizelos, who currently holds the mandate to seek coalition partners, is to meet Tsipras later tonight.

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 EU-IMF program would increase the risk of Greece leaving the eurozone,” Fitch said.

The agency said if Greece did leave the euro, it would be likely to 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.

However, it added, “in a benign scenario, the spillover and contagion to the rest of the eurozone could be less profound than feared and possibly provide the catalyst for greater fiscal and political integration.”

Germany’s Schaeuble also suggested Europe could weather a Greek exit better now.

“We have learned a lot in the last two years and built in protective mechanisms,” Mr 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.”

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

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