Greek Coalition Talks Fail, Forcing New Election

Simela Pantzartzi/European Pressphoto Agency

Fotis Kouvelis, the Democratic Left leader, attended a meeting with other Greek political leaders that was called by President Karolos Papoulias on Tuesday. The last-ditch attempt to create a coalition government failed.

By RACHEL DONADIO and NIKI KITSANTONIS

Published: May 15, 2012

ATHENS — Greek political leaders said Tuesday that they had failed to find consensus to form a government, pushing the rudderless country to new elections amid political instability and volatility in financial markets that could push Greece to abandon the euro. Markets immediately dropped on the news, and the euro’s value declined.

President Karolos Papoulias was expected to make plans for a caretaker government on Wednesday that would lead to new elections in a month. He is being forced to act by the failure of a last-ditch attempt to form a unity government aimed at keeping Greece in the euro zone and forcing it to honor its commitments to the foreign lenders who are keeping the country afloat.

The Socialists leader, Evangelos Venizelos, said in a televised statement that he hoped Greeks would make a more “historically well-considered” choice when they returned to the polls. He added that the talks on a unity government had failed “because certain individuals put their party’s interest above the good of the country.”

His remarks were aimed at the Coalition of the Radical Left, known as Syriza, which after placing second in the elections on May 6 said it would not back a government with the Socialists and center-right New Democracy party. Polls show Syriza would place first in new elections on a platform of scrapping Greece’s loan agreement with its so-called troika of foreign lenders — the European Commission, European Central Bank and International Monetary Fund — and the austerity measures that have come with it.

The failure to form a government underscored the disorder in Greece, where the debt crisis precipitated the collapse of a political order that helped drive the country into the debt crisis and that now seems powerless to steer it out of its predicament.

“This is the problem of the country,” said Loukas Tsoukalis, the president of the Hellenic Foundation for European and Foreign Policy, a research group in Athens. “On the one hand there is a failed political class, on the other demagogues who ride on anger.”

“It’s not looking good,” he added.

In the elections on May 6, Golden Dawn, a neo-Nazi party, received 7 percent of the vote and 21 seats in Parliament, largely on voters’ fears of illegal immigration and anger that the government had failed to maintain order in Athens.

But Greece’s foreign lenders are more concerned about Syriza. Critics say that if it comes to power and abandons the loan agreement, the troika would stop financing Greece, which would default on its loans and be forced to abandon the euro. Alexis Tsipras, Syriza’s 37-year-old leader, has said that if Greece is forced to stop using the euro, it will be because its loan agreement terms were impossible to meet.

On Tuesday, he defended his decision not to join a coalition with the Socialists and New Democracy. “All they did over the past eight days was to present a dilemma — memorandum or elections — in the secret hope of either blackmailing us into joining the pro-bailout forces or securing a better outcome in the next elections,” Mr. Tsipras said.

Mr. Tsipras — whose party received 17 percent of the vote, compared with 19 percent for New Democracy and 13 percent for the Socialists — said he had remained true to his voters’ wishes. “With dignity, we took the decision not to betray you, your hopes and expectations,” he said.

His political rivals and his critics consider Mr. Tsipras to be immature and a risk to Greek stability, but he has irrefutably changed the terms of the debate.

Still, should Mr. Tsipras capture more seats in Parliament in June, it is not a foregone conclusion that he will push Greece toward a euro exit. “The question is are they really that irrational, or willthey just be playing a game to gain more time and lenient terms for the Greek bailout and time?” said Daniel Gros, director of the Center for European Policy Studies in Brussels. “These guys know ifthey exit and default they probably won’t survive.”

The Socialists and New Democracy, who had their worst electoral showings in 40 years after signing Greece’s second loan agreement with creditors in February, have said that they, too, would seek to renegotiate some of the terms — and indication that no Greek government can enforce the current deal.

Mr. Samaras accused the antibailout forces of “promising the impossible” and of putting Greece at risk of leaving the euro, but said that his party would seek to modify the agreement to increase growth and ensure that the country remains part of the single currency bloc. “The message of the Greek people is clear: yes to the euro, no to the austerity that is crushing the Greek people,” he said.

When the government of the technocratic prime minister, Lucas Papademos, signed a second loan agreement with the troika in February — about $165 billion in loans and the largest debt write-down in history in exchange for Greece’s slashing of its budget deficit, pushing down wages, raising taxes and committing to a range of structural changes — political leaders said the deal was the only alternative to default.

Yet many Greek officials now acknowledge that the terms of the arrangement have set up Greece for failure and are pushing the country deeper into recession, a view that is becoming more widespread outside of Greece.

Charles Dallara, the head of the Institute for International Finance and the chief negotiator for bondholders in the Greek debt talks, warns that the current approach is not working. “We should learn lessons from the Greek experience that successive budget cuts only weaken the economy, and neither help achieve budget objectives nor credibility in the market,” he said in a recent interview.

Still, it remained to be seen whether the troika would be prepared to bend on any of the terms.

Before the May 6 elections, European officials had warned the Greeks that they were voting whether or not to stick with the euro.

But after hearing the same message from their leaders for the past two years — while wages dropped 25 percent and standards of living along with them — Greeks stopped believing the warnings and flocked to antiausterity parties across the political spectrum.

Those include Syriza, but also Independent Greeks, a right-wing nationalist party that split from New Democracy in April and received 10 percent of the vote.

The leader of Independent Greeks, Panos Kammenos, said Tuesday that talks to form a government had broken down because of “the arrogance of power,” a clear dig at the Socialist and conservative leaders who signed the bailout deal. “Some parties insisted on serving the interests of foreign creditors,” Mr. Kammenos said.

 Greek President Expected to Name Caretaker Government – NYTimes.com.