Greek President Proposes Government of Non-Politicians (Update 3)

By Maria Petrakis, Natalie Weeks and Marcus Bensasson - May 15, 2012 4:56 PM GMT+0300

Greece will hold new elections after President Karolos Papoulias failed to broker a governing coalition following an inconclusive May 6 vote, raising concern it may exit the euro. The currency and euro-area stocks fell.

“The country is once again headed to elections in a few days under adverse conditions,” Evangelos Venizelos, the leader of the socialist Pasok party said. “The Greek people told us they didn’t want elections but a coalition government, that they want Greece in the euro.”

Venizelos spoke after he and other party leaders met Papoulias today in Athens. A second Greek election threatens to extend the political gridlock that has left the country without a government since the last vote.

Greece’s political impasse means the new vote will have to be held as early as next month, with polls showing that could boost the anti-bailout Syriza party to the top spot. The country may run out of money by early July.

The standoff has reignited concern the country will renege on pledges to cut spending as required by the terms of its two bailouts negotiated since May 2010, and, ultimately, leave the euro area.

‘Exit the Euro’

“A second vote means Greece is edging closer to the point where it’s inevitable they have to exit the euro,” Fredrik Erixon, head of the European Centre for International Political Economy in Brussels, said in a phone interview. “No other course of events is now likely.”

European stocks fell for a second day and U.S. index futures slid, erasing earlier gains, after the talks to form a new Greek government failed. The euro weakened, reversing an earlier gain, and Treasuries pared losses.

Futures on the Standard & Poor’s 500 Index expiring next month lost 0.2 percent to 1,332 1,335 at 9:14 a.m. in New York after rising almost 1 percent earlier. The Stoxx Europe 600 Index lost 1.1 percent. The euro weakened 0.4 percent to $1.2775 after strengthening as much as 0.4 percent. The 10-year Treasury yield was little changed at 1.77 percent after rising to 1.81 percent earlier.

S&P 500 futures erased an earlier advance triggered when a Federal Reserve Bank of New York gauge of manufacturing expanded more than economists’ forecast, while the euro reversed a gain fueled as Germany’s faster-than-estimated economic growth helped the monetary union avoid its second recession in three years.

The Federal Reserve Bank of New York’s general economic index increased to 17.1 this month from 6.6 in April. Gross domestic product in Germany, Europe’s largest economy, rose 0.5 percent from the fourth quarter, compared to a 0.1 percent gain forecast by economists, while growth in the euro area stagnated, reports showed today.

To contact the reporters on this story: Maria Petrakis in Athens at mpetrakis@bloomberg.net; Natalie Weeks in Athens at nweeks2@bloomberg.net; Marcus Bensasson in Athens at mbensasson@bloomberg.net

To contact the editors responsible for this story: Craig Stirling at cstirling1@bloomberg.net Tim Quinson at tquinson@bloomberg.net

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