Political Limbo May Further Erode Greece's Stability

Greece will hold new elections next month after leaders failed to form a government this week. The political uncertainty has raised fears that the heavily indebted country will be forced to exit the eurozone.

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Greece will hold new elections next month after leaders failed to form a government. A vote held just 10 days ago, resulted in a hung Parliament split between supporters and opponents of the international bailout loans keeping Greece afloat.

As Joanna Kakissis reports from Athens, the political uncertainty has raised fears that the heavily indebted country will be forced to exit the eurozone.

JOANNA KAKISSIS, BYLINE: Politicians are divided over how to handle the EU-imposed austerity measures that come with the bailout loans. Greeks revile the wage and pension cuts and tax hikes that have sharply lowered their incomes and worsened the recession, now in its fifth year.

A leftist party called Syriza tapped into that anger and is now leading in public opinion polls. The party's brash young leader, Alexis Tsipras, says he wants to cancel the bailout agreement.

ALEXIS TSIPRAS: (Foreign language spoken)

KAKISSIS: This bailout was rejected by voters, he said, so no government has the right to keep forcing it on them. More than half of Greeks voted against pro-bailout parties on May 6th. But public opinion polls also show that more than 60 percent of Greeks want a coalition government to safeguard the country from default.

That's not going to happen if Greece stays deadlocked, says Evangelos Venizelos, leader of the Socialist PASOK party.

EVANGELOS VENIZELOS: (Foreign language spoken)

KAKISSIS: What's going to change with new elections, he said. Absolutely nothing. The political limbo is clearing scaring people. Citing data from the Greek Central Bank, President Karolos Papoulias told political leaders earlier this week that people withdrew nearly $900 million from local banks on Monday. If the fear holds, it will further erode the country's stability, says economist Manos Matsaganis.

MANOS MATSAGANIS: Those who pay for the country to remain solvent will wait until the situation is clearer, and that will create lots of problems. On the other hand, the investors will also wait; will turn away from a country that is so unstable.

KAKISSIS: If momentum builds to actually renege on the bailout terms, Greece could go into a messy default and run out of cash, says Megan Greene of Roubini Global Economics in London.

MEGAN GREENE: And Greece has a primary deficit right now, so that means if Greece were to default it wouldn't be able to pay any of its civil servants or its public sector, and so I think then it would have to leave the eurozone in order to print drachmas to pay people.

KAKISSIS: Spooked investors and European politicians are now talking openly about a Greek eurozone exit. There's even a new word for it - the Grexit. The EU is petrified of a possible Grexit right now because it doesn't have the money to bailout other struggling eurozone countries.

GREENE: If Greece were to have a disorderly default and exit, Spain would need a bailout, you know, the next day, and the money's not there.

KAKISSIS: A Greek exit would also further erode trust in the eurozone, says Euclid Tsakalotos. He's an economist with Syriza the big anti-bailout party in Greece.

EUCLID TSAKALOTOS: Once you've thrown out one country, the pressure will then turn immediately on the second country - Spain, Italy, Portugal - I don't know which it will be. It's rather like adultery, in that if you've done it once, the suspicion is you'll do it again.

KAKISSIS: Finding a way to keep Greece solvent, with or without bailouts, will fall to whomever Greeks vote in next month. Elections will likely take place on June 17th. Until then, a caretaker government will take charge. Greek news media report this government will likely be led Judge Panagiotis Pikramenos - whose last name means embittered.

For NPR News, I'm Joanna Kakissis in Athens.

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