EU: Samaras begins bid for Greek coalition that sustains rescue

Athens, 18 June (AKI/Bloomberg) - Greek election winner Antonis Samaras begins his second bid in six weeks to build a coalition as euro-area finance chiefs pressured him to form a government that would keep bailout aid flowing.

European officials indicated a willingness to ease the terms of rescue loans as long as Greece, with just weeks of cash in the bank, re-commits to their austerity demands. The prospect that Samaras would lose to anti-bailout leader Alexis Tsipras rattled markets concerned that Greece may quit the 17-nation currency union. The result sent the euro higher.

“The Greek people expressed their will to stay anchored with the euro, remain an integral part of the euro zone and honor the country’s commitments,” Samaras told supporters in Athens yesterday after the election result. “There is no time for petty politics.”

The vote forced Greeks, in a fifth year of recession, to choose open-ended austerity to stay in the euro or reject the terms of a bailout and risk the turmoil of exiting the union. With the 17-nation currency’s future on the line, finance ministers pledged to assist Greece in its struggle with the cycle of austerity and recession that has trapped the country since it became the first victim of the debt crisis in 2010.

Unity Idea

New Democracy won 129 seats, enough to put together a coalition with Pasok, whose leader Evangelos Venizelos said he’d propose President Karolos Papoulias broker a unity government that would include Syriza and Democratic Left. Papoulias will formally begin the process of asking Samaras to form a government when they meet at 12:30 p.m. today.

New Democracy and Pasok would have 162 seats if they agree to govern together in the 300-member parliament, according to Interior Ministry projections with 99 percent of yesterday’s vote counted. The addition of Democratic Left, which has demanded commitment to staying in the euro as well as “gradual disengagement” from the austerity measures, would give a government 179 seats.

Underscoring the urgency is that New Democracy and Pasok, rivals for four decades since the end of a military junta, will put aside their differences to prevent an economic collapse.

Syriza’s Opposition

Tsipras, head of Syriza, indicated his party would remain in opposition.

Syriza “will be present in all developments as the main voice of the anti-bailout vote in Greece,” he said. Austerity measures underpinning the international rescues extended to Greece have no popular support, he said.

“For markets, a majority for an ND-Pasok coalition would be a relief,” Holger Schmieding, London-based chief economist at Berenberg Bank, said in a note yesterday. “It would very much reduce the risk of a Greek euro exit.”

Stocks and the euro gained. The euro advanced 0.5 percent to $1.2701 at 8:05 a.m. in London. Futures on the Euro Stoxx 50 Index added 1.6 percent.

While Venizelos demanded that Syriza join a unity coalition, the former finance minister said a government must be formed right away to avoid further economic deterioration and safeguard Greece’s place in the euro. That will make it harder for him to hold off demands to team up with Samaras in a coalition that excludes Tsipras.

Pressure on Pasok

Pasok “will not be able to resist such a pressure,” Wolfango Piccoli, a political risk analyst at Eurasia Group in London, said in an e-mail.

Now in its third year, the European debt crisis has rounded back to Greece, which sparked the turmoil in October 2009 when Pasok Prime Minister George Papandreou revealed a deficit four times more than European rules allowed. Greece has since gotten two rescue packages totaling 240 billion euros ($303 billion) from the European Union and International Monetary Fund.

“With the Greek elections finally behind us, and New Democracy the winner I expect a swift move to a new government,” said Douglas Borthwick, managing director at Faros Trading LLC in Stamford, Connecticut. “The speed of the formation is essential, the faster the better.”

In exchange for the aid, Greece promised state asset sales, pension cuts and wage reductions. Tsipras pledged to abandon those measures. Samaras had said that made the vote a referendum on quitting the euro. Tsipras, who said he’d try to keep Greece in the euro while tearing up the bailout agreements, urged voters to reject the two main parties that backed the international rescue, New Democracy and Pasok.

Central Banks

Before the vote, central banks intensified warnings that Europe’s failure to tame its debt crisis threatens to roil the world’s financial markets and economy as Greece’s election looms as the next flashpoint for investors.

As the results came in, the Group of Seven industrialized nations said in a statement that it’s in “all our interests for Greece to remain in the euro area while respecting its commitments.” The G-7 also said “we welcome the commitment of the euro area to work in partnership with the next Greek government to ensure they remain on the path to reform and sustainability within the euro area.”