Crisis returns to Greece as PM gambles on bailout endgame

December 9, 2014, 11:50 AM UTC
A protester holds a poster depicting Greek prime minister Antonis Samaras and coalition government's vice president, Evangelos Venizelos and reading "they united to destroy us, lets unite to save ourselves" outside the Greek parliament in Athens on October 10, 2014, as lawmakers debate prior a vote of confidence for the Greek Prime minister. Greek Prime Minister Antonis Samaras requested a vote of confidence, to douse speculation about early elections. AFP PHOTO/ LOUISA GOULIAMAKI (Photo credit should read LOUISA GOULIAMAKI/AFP/Getty Images)
Louisa Gouliamaki/AFP—Getty Images

Greece and the Eurozone are set for a hair-raising Christmas after a massive gamble by Prime Minister Antonis Samaras that could usher into power a party that says it would rather default than repay hundreds of billions of euros in bailout loans.

Samaras’ decision came after Greece’s Eurozone creditors agreed to keep bankrolling it for another two months after the end of this year, when its €240 billion ($297 billion) emergency support program was due to end.

It brings to a head political risks that have been simmering for the last couple of years since Greece’s second bail-out, which despite forcing massive losses on private bondholders failed to cut the country’s debts to a manageable level.

Samaras’ coalition of the center-right New Democracy party and PASOK, which until the crisis had dominated the center-left space in Greece’s political spectrum for decades, is under enormous pressure from the more radical left-wing party Syriza, led by Alexis Tsipras. Syriza came first in this year’s European elections in May as Tsipras led a campaign against the grinding austerity that has contributed to shrinking Greece’s economy by a quarter since 2010.

Samaras had wanted to exit the bailout program as soon as possible to avoid having to make any more spending cuts or other measures dictated by the deeply unpopular “Troika” of the European Commission, the European Central Bank and the International Monetary Fund.

However, the creditors had refused to pay out the last instalment of the emergency loans due to Athens’ failure to implement agreed cutbacks and reforms, and had said they wanted to extend the program by six months. At a meeting in Brussels Monday night, Greece and the rest of the Eurozone compromised by agreeing a two-month extension.

That deal created the political space for Samaras’ gamble.

Greece’s president Karolas Papoulias was due to step down from his largely ceremonial post in February. But his coalition doesn’t command the two-thirds majority in parliament needed to elect a new one, and if Syriza successfully blocks Samaras’ candidate, then new parliamentary elections will have to be called within four weeks.

A poll at the end of November by Metron Analysis suggested Syriza would be the largest party in any new parliament, with a 3.5% lead over New Democracy.

Nick Malkoutzis, deputy editor of the Greek newspaper Kathimerini’s English edition, said via his Twitter account that, by moving the presidential vote up to Dec. 17, Samaras has effectively asked the Greek people to decide who they want to handle the decisive final talks with the creditors on life after the bailout.

“The combination of very large electoral uncertainty and the lack of an official financing backstop would release a meaningful period of uncertainty for the sovereign,” Deutsche Bank analyst George Saravelos said in a blog post late Monday.

Greek stocks head into the vortex again.

That uncertainty was on plain view in Greece’s financial markets Tuesday, with the yield on the government’s benchmark bond surging by nearly half a percentage point to 7.84%. That’s well above what a Greek government could afford to pay if it wanted to do without official support. Greece’s benchmark stock index, meanwhile, lurched 9.5% lower by lunchtime in Athens.

If Syriza were to come to power, it would be the first of the radical new European parties that have sprung up since the crisis to form a government. Whether it would be able to extract meaningful debt relief from a German-led Eurozone that seems as determined as ever to prioritize structural reform and fiscal discipline isn’t clear, but the negotiations would certainly be as loud and as tense as anything seen since the Eurozone debt crisis erupted, in Greece, four years ago.