Global markets staged a strong rally overnight on hopes that the US central bank is about to announce further monetary stimulus, but developments in Athens could once again be about to cruel this optimism.
Although the conservative New Democracy party mustered the most votes in Sunday’s election, it failed to win an outright majority. As a result, New Democracy leader Antonis Samaras is now holding negotiations with Evangelos Venizelos, the head of the socialist Pasok party, about forming a coalition government. Both hope to persuade the Democratic Left party of Fotis Kouvelis to join the coalition, which would mean it controlled 179 votes in the 300-member parliament.
But although the three parties all agree that the conditions imposed on Greece in exchange for its latest €130 billion ($US165 billion) bailout need to be changed, they are at odds over how tough a stance Athens should adopt when it faces off against the 'troika' – officials from the European Union, European Central Bank and the International Monetary Fund.
Democratic Left leader Fotis Kouvelis has previously indicated that he will only join a coalition government if it pledges to get the country out of the "most unfavourable” conditions imposed on it under the austerity package. Overnight, he said although there were still differences between the three parties on what changes should be made to the bailout agreement, he expected agreement could be reached "before the end of the week”.
Meanwhile, Pasok’s Venizelos struck a hairy-chested pose, saying that the most important issue "is not the composition of the government, but the national negotiating team which will try to conduct the best possible negotiations on the loan agreement.” In a brief televised address, he promised that "we are going to mobilise all our international contacts and all our experience”.
All three political leaders – Samaras, Venizelos and Kouvelis – are deeply aware that any coalition government they form will come under sustained attack from the stridently anti-austerity Syriza party, which came in second place in Sunday’s vote.
They are also aware that, with the Greek economy plunging ever-deeper into depression – Greece’s economy is expected to shrink by 6.5 per cent this year – they need to demonstrate to voters that they are putting up a determined fight to free Athens from the shackles of its austerity program.
But the Greek government’s funds are running low. Athens will run out of money to pay pensions and public servants within weeks unless it can persuade the troika to release the next tranche of bailout money.
Samaras and Venizelos are planning to ask the troika to grant Greece an extra two years to meet the fiscal targets it agreed to in March. This would mean that Athens will have to ask for an extra €16 billion on top of its existing bailout.
This is hardly likely to please German Chancellor Angela Merkel, who knows that increasing the size of the Greek bailout will further fuel discontent in her governing coalition in Berlin.
Although Merkel is realistic enough to know that the Greek bailout will inevitably have to be altered because the country has given up on its reform efforts in recent times, she’s reluctant to give Athens any encouragement. At the G20 summit in the Mexican resort of Los Cabos she once again stuck to her script, ruling out any changes to Greek bailout, and urging Greece’s new leaders to "fulfill their commitments quickly”.
Greek bailout parties hang tough
As Greece's funds again run empty, the question of how tough a stance Athens should take as it seeks more money is hanging between prospective coalition parties.
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