Greek bailout back on track

ANTONIS Samaras, the leader of the victorious right-wing New Democracy party, said yesterday he wants to form "a national salvation government" with as many parties as possible after a hard-fought election that left Greeks more polarised than ever.

Mr Samaras's narrow victory on Sunday over the radical-left Syriza party has reassured conservative and middle class Greeks as well as EU leaders.

But he faces problems in forming a coalition capable of winning better bailout terms from the EU and lifting the economy out of deep recession.

As his first step towards creating a coalition, Mr Samaras met yesterday with Evangelos Venizelos, the leader of the socialist party Pasok, the ruling party of Greece until late last year which has since seen many of its supporters defect to Syriza.

Pasok, whether it joins a new government or simply supports it in parliament, will need to show that it is an effective opponent of the EU austerity measures if it wants to avoid further defections to the left.

The party with the most votes automatically gets a 50-seat bonus in the 300-seat parliament so a New Democracy-Pasok coalition would have 162 seats.

But it would also face an energised opposition in the shape of Syriza with 71 seats under its effective young leader, Alexis Tsipras, making it difficult to impose fresh cuts to wages, pensions and state budgets.

Mr Samaras will probably also try to include the Democratic left, which split from Syriza and is anti-bailout but is in favour of staying in the euro.

Despite hopes that the Greek election results might bring some stability to the financial markets, the brief positive response rapidly gave way to more fearful selling yesterday.

Spain and Italy - the two most vulnerable eurozone economies that have not yet received a full bailout - saw their borrowing costs spike upwards.

Spanish 10-year bond yields hit their highest levels since the foundation of the single currency at one point in trading, touching 7.28 per cent.

The Asian stock markets had rallied overnight on the news of New Democracy's victory, but investors in Europe sold furiously, with the Spanish Ibex index closing down 3 per cent and Italy's major exchange dropping 2.9 per cent.

The Athens stock market rallied by 3.6 per cent.

The fate of a new government will depend on how far it is able to extract concessions from Brussels and Berlin.

Efklidis Tsakalotos, an economics professor at Athens University and a newly elected Syriza MP, said the most important question is how far the new government can successfully ask European leaders for better terms "to keep out of power those horrible radicals".

Mr Samaras said Greece would keep to former agreements, but added: "We will simultaneously have to make some necessary amendments to the bailout agreement, in order to relieve the people of crippling unemployment and huge hardships."

German leaders have spoken of an extended timeframe to implement reforms and pay debts, but this will scarcely be enough to stop Greece sinking deeper into recession.

The poll's final result was determined by better-off Greeks who feared a Syriza victory would lead to an exit from the euro.

In the wealthier districts of Athens and in more prosperous towns, New Democracy did strikingly well, while Syriza had similar success in working and lower middle-class areas.

Angela Merkel: "The important thing is that the new government sticks with the commitments that have been made. There can be no loosening on the reform steps."

Mario Monti: "This allows us to have a more serene vision for the future of the European Union and for the eurozone."

David Cameron: "The outcome of the Greek election looks clear in terms of a commitment to stay in the eurozone and to accept the terms of the memorandum. But I think those parties that want that to happen can't afford to delay and position themselves. If you are a Greek political party and want to stay in the eurozone and accept the consequences that follow, you have got to get on with it and help form a government."