ANALYSIS-Greek PM gambles with election threat
2010-11-02 07:10:18 GMT (Reuters)
* Papandreou says needs clear voter support for reforms
* Spreads, bank shares hit by election jitters
* Local elections take place on Nov. 7 and Nov. 14
By Ingrid Melander
ATHENS, Nov 2 (Reuters) - Greek Prime Minister George Papandreou is making a risky play for support by threatening to call early general elections if disgruntled voters do not back his austerity policies in local polls this weekend.
Election talk has forced Greek bond spreads wider and bank shares lower with investors fretting over risks of instability as the country scrambles to meet a tough year-end deadline set by the EU and the IMF to slash its budget deficit.
Papandreou would likely lose his comfortable majority in a snap election, analysts say, and with major parties all down in opinion polls the most likely outcome would be a coalition or a slim majority, either of which would hurt the drive for reforms.
Polls have shown the ruling Socialists (PASOK) may lose the Nov. 7 and 14 local and regional vote in key areas including the capital as Greeks show their opposition to the tax hikes, spending cuts and pension freezes PASOK proposes.
"God forbid, the last thing we need is instability during this crisis," said Theodore Couloumbis, vice-chair of Greek think-tank ELIAMEP. "I hope Mr Papandreou is doing this for tactical purposes to help his cause in this coming (local) election and that it's not part of his strategy."
Greece has made progress cutting its deficit but tax collection still lags and risks remain over local authorities and hospital spending. Investors also question if Greece can sustain its programme in the face of a bleak economic outlook.
The 10-year Greek bond yield spread over German Bunds has risen to 838 bps from just above 700 bps on Oct. 25, when Papandreou first hinted at the possibility of snap elections.
Greek bank shares <.FTATBNK> have also taken a hit, losing 13 percent over the same period.
"NOT BLUFFING"
If he wins his bet and comes out stronger from the local elections -- usually of minor importance in Greece -- Papandreou will have a stronger mandate to continue with unpopular belt-tightening agreed to stem a debt crisis which exploded after he came to power last year.
But he is also risking antagonising voters, most of whom oppose early elections, analysts said.
In the streets of Athens, many said they were puzzled and talked of "blackmail" -- a word used by the conservative opposition party -- whether they are PASOK supporters or not.
Papandreou has not specified what his benchmark for triggering elections would be and a government spokesman has said it was not possible to define a threshhold in percentages.
"He blackmailed us, he certainly threatened us," said 26-year old bar tender Spyros Klimis. "We were taken aback and he's risking a lot," he said, adding he would nevertheless vote for PASOK because he believes the country needs reforms.
Support for PASOK candidates has slightly improved among core party voters after Papandreou's comments but it is too early to estimate whether he would win his bet, said a Greek analyst who declined to be named.
In an interview over the weekend, Papandreou said he was not bluffing about the possibility of calling snap elections and needed support for policies meant to bring Greece's deficit to under 3 percent of GDP by 2014 from over 15 percent last year.
The opposition conservative New Democracy party, which has been saying for weeks that the local election would test PASOK policies, opposes the austerity plan agreed with the EU and the IMF in return for a 110 billion euro ($153.7 billion) bailout.
"If our course so far starts to be doubted, if we show that we are losing resolve in the middle of the road and are being led to destabilisation, confidence in the country will be lost," Papandreou told Sunday's RealNews paper. [ID:nLDE6A005M]
A PASOK politician, ousted from the party's parliamentary group for voting against the EU/IMF plan in May, is seen winning the election for the Athens region, Greece's biggest, in a sign of disappointment with both the ruling party and the opposition.
A major financial daily, Imerisia, urged the government not to call elections even it fares poorly in the municipal vote to show EU and IMF inspectors, who are due to visit Greece on Nov. 15, that it is serious about reforms.
"This is the only way to ensure the third installment of the EU/IMF loan and deliver a clear message to markets... it is the only way to avoid a return to our bankrupt past, to make a key step for the future," it wrote in its editorial.
Officials at both the EU and the IMF have declined to comment. A German government spokesman has said Berlin, Europe's main paymaster, was not worried about Papandreou's hint on the possibility of general elections.
"I don't think this (snap general elections) will happen, I think both the government and the main opposition party are wise enough to know that this would not help the country at the current juncture," said BNP Paribas analyst Ioannis Sokos.
