Greek’s Attempts to Build a Coalition Go Into Deadlock

The Greek President, Karolos Papoulias, has so far failed to secure agreement on a united government. The fears that the country is heading toward a possible exit from the euro area are rising.
The President called the four main parties, including the centre-right New Democracy and the Socialist Pasok, to try to form an emergency government. Greece’s biggest anti-bailout party, Syriza, declined to join the government yesterday, explaining that it would not back any coalition, which supported austerity. The moderate Democratic Left party said it will not join pro-bailout parties in a coalition without the more radical far left Syriza.

Both New Democracy and Pasok have so far been unable to form a new coalition. They both agreed to the required budget cuts in return for the last bailout, and as a result both parties suffered at the last week’s polls. Syriza, which came second, insists any new government must cancel austerity measures agreed in return for EU-IMF loans worth 130 billion euros.

Today’s meeting called by Papoulias will be with the leaders of two of the three biggest parties, and the head of the smaller Democratic Left party. If the President’s efforts fail, new elections will need to be called. The fear over holding new elections is that parties that oppose austerity measures required in the Greece’s bailout deal might do well again.

The European Financial Stability Facility confirmed that a 5.2 billion euro tranche will be released by the end of June, with 4.2 billion euros disbursed May 10. The remaining 1 billion euros will be released depending on Greece’s financing needs. Under the terms of the bailout, a new government will need to present an official plan on how it will save 11 billion euros next month.

Fitch Ratings said that if Greece would need another election, it would be doubtful that the Greek government could comply with the EU-IMF’s end-June deadline to propose further medium-term austerity measures. While Greece would probably be granted an extension to that deadline, any attempt to significantly renegotiate its program would be unacceptable to the so-called troika of the European Commission, IMF and European Central Bank. Greece will run out of cash by early July if the country’s creditors decided to withhold their next aid payment.

With no sign Europe’s leaders are prepared to renegotiate the deal, Greece could end up leaving the euro zone. Officials are already weighing up the fallout of a potential Greek withdrawal from the euro and how that would be managed.

EU finance ministers are due to meet in Brussels to discuss the Greek crisis later on today.

Source: Bloomberg

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Kenny Fisher

Kenny Fisher

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.