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Greece's pro-euro vote spurs talk of relief on bailout conditions

June 20, 2012 |  4:00 am

New Democracy leader Antonis Samaras
With mainstream politicians poised to retake control of Greece's government, global financial leaders have begun signaling some willingness to ease the biting pain of austerity measures that drove Greeks to the brink of abandoning their commitment to the euro currency.

GlobalFocusThe 17-nation Eurozone remains far from unanimous on the need to review conditions imposed on Greece in exchange for more than $300 billion in bailouts. But since Greek voters last weekend rejected leftist calls to break the country's promises of reform and deficit reduction, the mood has shifted in favor of recognizing that Athens requires some room for maneuvering to cut its debt.

In Brussels on Tuesday, news agencies quoted an unidentified European Union official as saying that it is an "illusion" to expect Greece to meet the conditions for continued cash infusions when the country is mired in a fifth year of recession, suffers 22% unemployment and has been without a functioning government for more than a month.

Other voices have chimed in with the same warning. Jean-Claude Juncker, head of the Eurozone finance ministers group, told Austria's ORF radio that "there could be a shift in the time frame" for Greece to make further budget cuts and structural reforms, taking note of the unexpected depth and endurance of the recession. And at the Group of 20 gathering in Mexico that has been dominated by the euro crisis, a top U.S. Treasury official also called for cutting the battered nation some slack.

The United States expects to see European leaders show "recognition that Greece's program has gone off track for some period of time, in part because they had a protracted political process and have not had a government," Treasury Undersecretary for International Affairs Lael Brainard said in Los Cabos. Her boss, Treasury Secretary Timothy F. Geithner, told reporters there that he was "encouraged by what we heard from European leaders today."

The talk of flexibility was directed at German Chancellor Angela Merkel, who has resisted calls for easing the Greek bailout terms. She reiterated Berlin's expectation of full compliance with the bailout conditions, asserting at the G-20 summit that "no departures can be made from these reform measures."

Under the current bailout terms, Greece would have to cut its budget deficit to about 2% of gross domestic product by 2014, from last year's 9.3%, despite the recession that deprives the country of income to pay its debts. During the election campaign and in coalition talks this week, Greek politicians said they would ask European counterparts for two more years to meet the deficit target.

Prospects of a functioning government in Athens are a start toward restoring confidence in the euro, analysts say, following a disastrous first election last month  in which voters spread their support across such a wide array of fractious political forces that none could agree on a governing coalition. 

Sunday's replay gave a slight combined majority to the center-right New Democracy party and the Socialist party, which have dominated Greek politics for four decades. Their leaders campaigned on a pledge to do what is necessary to retain the euro, on top of already sharp declines in income and living standards.

The stridently anti-austerity Syriza party, led by leftist firebrand Alexis Tsipras, finished second in the balloting. Tsipras rejected cooperation with the mainstream parties, and Syriza's securing of 71 of the 300 parliament seats will give him a platform to continue undermining public support for more belt-tightening.

Economic analysts suspect Merkel will eventually accept the reality that without some flexibility, Greece won't be able to fulfill its obligations and could be forced from the Eurozone, triggering a potential domino effect among other heavily indebted euro users.

"There is definitely a game of chicken being played between Athens and Berlin," said Charles A. Kupchan, former National Security Council director for European affairs during the Clinton administration. He sees the Greek leaders seeking some reprieve in making further spending cuts, while Merkel wants to stand fast in demanding that struggling Eurozone members meet their obligations.

Even with the Greek vote seeming to avert the worst-case scenario for the euro, said Kupchan, global markets have continued to show nervousness over the euro's future. Borrowing costs for Spain's 10-year notes have reached a euro-era high of more than 7%, a level that earlier pushed Greece, Portugal and Ireland into default. 

"The European Union has been behind the curve from the get-go," the former diplomat now with the Council on Foreign Relations said of the German-Greek standoff. "And the bill goes up the longer they wait."


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Photo: The New Democracy party led by Antonis Samaras, center, finished first in Sunday's election but faces a newly strengthened leftist opposition in meeting Eurozone conditions for keeping Greece in the currency union. Credit: Petros Giannakouris/Associated Press