Greek Prime Minister Antonis Samaras on Monday called for a snap poll next month that could bring a radical anti-austerity party to power after parliament failed for a third time to elect a president.
The legislative vote expected on January 25 is likely to further rattle global financial markets after Greece’s dire finances nearly destroyed the eurozone in 2012.
As stocks in Athens tumbled and analysts saw the makings of a new Greek crisis, Samaras insisted voters would choose to stay the course of fiscal reform.
“I very strongly believe that the pro-European forces and those forces who have been for the necessary structural changes in this country, will prevail. I am very optimistic on this,” he told reporters.
Greek stocks closed down almost four percent — having lost a massive 11 percent earlier — amid fears that the front-running far-left Syriza party could roll back tough austerity measures if it wins the election.
Europe’s main bourses were also lower, with some analysts warning about the possible risk of contagion.
Syriza had dismissed warnings that its electoral programme could spook the markets, but within hours of the election call, the International Monetary Fund said it was suspending further bailout payments to Greece until a new government is formed.
“Discussions with the Greek authorities on the completion of the sixth review of the programme… will resume once a new government is in place, in consultation with the European Commission and the European Central Bank,” said IMF spokesman Gerry Rice.
The rate on 10-year Greek bonds jumped to 9.55 percent from 8.5 percent last week but yields on French and German bonds hit new lows, suggesting the Greek crisis could be contained.
The European Union called on Greeks to stick by the often painful reforms adopted as part of a massive international bailout for the eurozone member state.
“A strong commitment to Europe and broad support among the Greek voters and political leaders for the necessary growth-friendly reform process will be essential for Greece to thrive again within the euro area,” EU economic affairs commissioner Pierre Moscovici said.
The new election was triggered after the government candidate to replace President Karolos Papoulias, former EU Environment Commissioner Stavros Dimas, secured just 168 votes out of the 180 needed in the third and final round of balloting.
Under the constitution, parliament must be dissolved in the next 10 days.
Syriza, which declined to vote in the presidential ballot in order to force snap legislative polls, wants to raise salaries and pensions, halt layoffs and freeze the privatisation of state assets — key elements of reforms demanded by Greece’s EU-IMF creditors.
– Bailout deal will be ‘history’ –
“With the will of our people, in a few days the bailout agreements of austerity will be history,” Syriza’s 40-year-old leader Alexis Tsipras told reporters.
Samaras said he would ask Papoulias to hold elections on January 25, a ballot which would be Greece’s “most decisive in decades”.
Analysts at Berenberg bank said there was “a significant risk” Greece may descend into a new deep crisis “with potential euro exit beyond the inevitable bout of near-term uncertainty now”.
German Finance Minister Wolfgang Schaeuble said Greeks must not abandon the agreed economic reforms, saying “they have no alternative”.
European Commission President Jean-Claude Juncker had recently warned against a “wrong election result” that could see “extreme forces” take power.
– ‘Worst possible time’ –
The European Union and the IMF have overseen two massive bailouts for Greece after its debt crisis nearly destroyed the 18-member single currency zone.
But even after the rescue packages worth 240 billion euros ($290 billion) and most of the debt held by private investors being wiped out, the economy has only just begun to recover after six years of recession.
“The opposition today forced early elections at the worst possible time for the country’s economy,” Greek conservative lawmaker Dora Bakoyannis said.
Opinion polls show Samaras’s ruling coalition trailing Syriza but the gap has narrowed, indicating the party would not have a clear majority to form a government on its own if polls were held now.
The reforms demanded for the bailout have improved government finances but have taken a heavy toll on Greeks as unemployment has soared above 27 percent and many people have had wages and benefits cut.
Greece recently secured a two-month extension to February from its EU-IMF creditors to conclude a fiscal audit that will determine the release of some 7.0 billion euros ($8.6 billion) in loans.
Finance Minister Gikas Hardouvelis said a new extension could be required if the conservatives are not returned to power.
“If there is an entirely new government, they will take some time to realise what is going on… perhaps a new extension may be required because the end of February is too tight,” he said.