Samaras Seeks Greek Unity On Cuts After Career Stoking Divisions

By Jonathan Stearns and Maria Petrakis - Jun 19, 2012 12:01 AM GMT+0300

Bloomberg

… said Syriza, which has ruled out taking part in a coalition with New Democracy, would be a “formidable” opposition force in parliament…

… The stress-testing of the next Greek coalition would be a very bad idea…

Europe has told Greece to unite behind a faltering austerity program to stay in the euro. Antonis Samaras, poised to become Greek premier, has a history of stoking divisions inside and outside his New Democracy party.

Samaras, 61, rejected Greece’s bailout in 2010 and used the required budget cuts to hammer the Socialist Pasok government. He kicked a rival out of his party for backing that program before winning election this week as a champion of belt- tightening. His brinkmanship led European Commission President Jose Barroso to tell Samaras in November to stop playing “political games.”

“Samaras has been a rather divisive person,” Stefanos Manos, a former New Democracy member whose Drasi party failed to win enough votes on June 17 to enter parliament, said by phone yesterday from his house near Athens. “He has to change now. There’s no track record of achievements.”

Greece’s battle to stay in the German-designed single currency after 240 billion euros ($302 billion) in aid pledges from the euro area and International Monetary Fund has sparked calls for unprecedented unity just when the domestic political scene is more splintered than it has been in four decades. Since the end of a military junta in 1974, New Democracy and Pasok alternated in power.

The potential clash between European demands for more budget cuts and Samaras’s ability to deliver may keep alive the threat of Greece’s exit from the euro. New Democracy topped this week’s vote with 29.7 percent, leaving Samaras dependent on the third-place Pasok to form a government that can keep aid flowing in the fifth year of recession.

Spendthrift Policies

Years of spendthrift policies by both parties culminated in late 2009 with Pasok’s disclosure that New Democracy had understated the budget deficit. New Democracy’s supporting role in driving Greece toward bankruptcy may make Samaras vulnerable to attacks by opponents of austerity and increase his need for the euro area to loosen the country’s fiscal straitjacket.

The other 16 euro-area nations reacted to the election result by saying Greece, where unemployment is at record of more than 22 percent, needs “continued fiscal and structural reforms” and urging the “swift formation of a new Greek government that will take ownership of the adjustment program.”

New Democracy emerged from the election just ahead of Syriza, an anti-austerity party that rode a wave of public anger over fiscal tightening. Syriza got almost 27 percent, up from nearly 17 percent in an inconclusive May 6 election.

Syriza’s Gains

New Democracy improved on its top spot of almost 19 percent last month after warning that a victory in June for Syriza, led by Alexis Tsipras, a 37-year-old former student protester, would threaten a return to the drachma and economic collapse.

That prompted people like Thanos Veremis, a professor emeritus of modern history at Athens University, to set aside a dislike of Samaras and vote for him.

“He’s not a very credible politician because of 20 years of shenanigans,” Veremis said by phone yesterday in Athens. “I voted for him to vote against Tspiras. The alternative would have been disastrous.”

A champion tennis player in his youth and a former student at Amherst College in the U.S., Samaras abandoned New Democracy almost two decades ago when he founded a party to capitalize on a dispute with the former Yugoslav Republic of Macedonia over its name. The issue is sensitive for Greeks because of concerns it implies a claim on a northern region in Greece that’s also called Macedonia.

Midnight Votes

He rejoined New Democracy about a decade later and took over as leader when it was ousted in 2009 by Pasok. Samaras spent the next two years trying to thwart then Prime Minister George Papandreou in a series of knife-edge midnight votes -- as Papandreou’s own Pasok support crumbled -- and Greece sought to meet the terms of a first bailout agreed in May 2010.

In the process, Samaras kicked out of New Democracy a stalwart named Dora Bakoyannis, a former foreign minister and ex-premier’s daughter whom he had defeated for the party leadership, after she voted in favor of the first rescue of 110 billion euros. Bakoyannis created her own party that failed in May to garner enough support to enter parliament and, as speculation mounted about a possible Syriza victory in the June election, she returned to New Democracy to bolster its chances.

Samaras, one of the signatories of the European Union’s 1992 Maastricht Treaty that paved the way for the euro because he was Greek foreign minister at the time, yesterday began talks on forming a ruling coalition by leaving the door open to parties committed to keeping Greece in the single currency.

‘National Salvation’

“My aim is to immediately form a long-term government of national salvation with the parties who believe in a European orientation for the country, who believe in the euro,” he told President Karolos Papoulias while receiving the mandate to build a coalition.

As prime minister, Samaras would have his work cut out for him to win the confidence of creditors such as Germany, the Netherlands and Finland that are increasingly skeptical about Greece’s ability to meet the terms of the rescue.

Greece must pursue budget cuts with “determination” to win the release of further aid from the euro area and IMF, the European Commission said on May 30. The country faces a cumulative fiscal gap in 2013-2014 of 5.5 percent of gross domestic product, according to the commission, the 27-nation EU’s executive arm.

Falling Short

A lack of progress in bolstering tax collection, improving public procurement and selling state-owned assets has left Greece struggling to meet targets for narrowing a budget deficit that in 2009 was more than five times the EU limit.

“There has been a lot of non-compliance,” Riccardo Barbieri, chief European economist at Mizuho International Plc in London, said yesterday by phone. “There’s a lot that’s left to be desired in terms of implementation. They must get to work immediately on the difficult reforms.”

Greece narrowed its budget deficit from more than 15 percent of GDP in 2009 to 9.1 percent in 2011. The country’s spending gap is due to fall to around 7 percent of GDP this year.

Drasi’s Manos said Syriza, which has ruled out taking part in a coalition with New Democracy, would be a “formidable” opposition force in parliament. The new government will need “a surplus of courage,” he said.

Together, a New Democracy-Pasok coalition would have 162 seats in the 300-member Greek legislature.

Mixed Signals

European leaders have sent mixed signals about granting Greece leeway. EU President Herman Van Rompuy said “we will continue to stand by Greece” after the election. German Chancellor Angela Merkel sounded a more hard-line note, saying yesterday “there can be no loosening on the reform steps.”

Mizuho International’s Barbieri said the euro area should give Greece more time to meet budget limits. He said this would help win domestic support for the fundamental changes needed for Greece to stabilize the economy, revive growth and return to bond markets from which it has been shut off since 2010.

“The stress-testing of the next Greek coalition would be a very bad idea,” Barbieri said. “Europe must throw Samaras a bone. There needs to be a compromise.”

To contact the reporters on this story: Jonathan Stearns in Athens at jstearns2@bloomberg.net; Maria Petrakis in Athens at mpetrakis@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net