What will Greek elections mean for the country’s future?

Editor’s note: As Greeks protest on the streets about unpopular austerity measures aimed at cutting national debt, a general election is called that could lead to more uncertainty. CNN explains what’s happening and what it could mean to Greece’s future.

London (CNN) — What is happening in Greece?
Greece is preparing to head to the polls after Prime Minister Lucas Papademos said the country will hold a snap election on May 6. The elections are the first since the Greece crisis exploded and come as the country desperately attempts bring its finances under control.

The announcement comes amid collapsing support for the two parties — New Democracy and PASOK — which have dominated Greek politics since the fall of the military junta in 1974. Political support has splintered, and smaller parties have gained in response to the financial crisis which has wracked the country for almost two years.

Will debt deal save Greece?

The main parties’ support of brutal austerity measures, demanded by the country’s international creditors in return for aid to keep the country afloat, has left many Greeks disenchanted with the political establishment.

The political landscape is now deeply uncertain, and likely to be one of the most important elections in decades.

Why are they holding an election now?

Papademos, a former banker and European Central Bank vice president, is an unelected politician who was sworn in as head of an interim government on November 11, 2011, after four days of political wrangling.

Papademos’s mandate was to implement Greece’s second bail-out package, which was finally agreed on February 21, and included €130 billion ($170 billion) in new financing.

His government is a coalition made up mainly of historically polarized New Democracy and PASOK. The interim government was put in place after George Papandreou’s dramatic final days as Greece’s leader, in which he announced he would hold a referendum on the second bail-out package before withdrawing the suggestion.

Greece plays chicken with its people

The flip-flopping sent shivers through the world markets, ratcheted up fears Europe’s bailout program would fail and left Papandreou politically damaged.

The bail-out deal included an unprecedented restructuring of the country’s debt which sliced the value of private creditors’ investments in the country in half, saving the country €100 billion from its total debt pile of more than €300 billion.

Austerity drives up suicide

However, the austerity measures also triggered violent protests, with dozens of buildings burnt in Athens earlier this year in protest. The suicide of 77-year-old retired pharmacist Dimitris Christoulas this month, in central Athens’ Syntagma Square, also underscored the pain of the austerity measures.

What parties are in the running?

New Democracy, which is politically center-right, is ahead in opinion polls, which are indicating support of between 18% and 21%. PASOK, which sits center-left, is polling between 13% and 15%. This puts the two of them together at less than 40%, compared to a combined 77% at the last election.

In opinion polls the Communist Party has between 8% and 11% support, while smaller parties such the left-wing Syriza party and nationalist LAOS party have between 7% to 12%, and 3% to 4% respectively.

Crucially, however, a GPO poll shows one in three voters doesn’t intend to or hasn’t decided how to vote, leaving the outcome difficult predict. The polls also show the rise of two new political parties, the Democratic Left and right-wing Independent Greeks.

The drop in support for the main parties has been severe; In 2009, PASOK won the election with 43.9% of the vote, followed by New Democracy at 33.5%. The Communist Party took just 7.5%, with LAOS sitting at 5.6% and Syriza sitting at 4.6%.

What could happen?

It appears unlikely any one party will win a majority, meaning a coalition government is a likely outcome.

It is possible the two main parties could build a coalition, or one could be put together with the center-right, or center-left parties. There are doubts over whether the historically opposed New Democracy and PASOK could maintain a long-term stable government.

However, a coalition made up with smaller parties could also be fragile, and create difficulties in pushing through new measures.

Current polls show nine parties meet the 3% threshold to enter parliament. Indecision over a coalition could lead to a further administrative rule.

Whatever the outcome, there are already fears an unstable government could force the country back to the polls within months, as happened in 1989.

it is also unclear who could be the next prime minister in a coalition, although the polling suggests it will be the leader of New Democracy, Antonis Samaras. There is speculation, however, Papademos may be forced to continue as a transitional leader.

The election comes as the country remains volatile and at risk of spiraling deeper into crisis, despite the two bail-outs foisted upon it by the International Monetary Fund and its eurozone peers.

Its economy is shrinking, unemployment is rising and remains unable to raise money in the capital markets which it needs to unshackle itself from the aid packages.

As such, journalist Pavlos Tsimas says the election’s outcome will be decided by the sentiment of fear or anger. He believes those who are afraid of suffering more than they have already will vote for the traditional parties, while those who are angry will vote for parties at the political edges. “It is very hard to predict which sentiment will prevail, fear or anger,” he says.

How will the election impact on the eurozone’s debt crisis plan?

Under the terms of the second bail-out, the leaders of the main parties were required to agree to continue to the austerity measures after the elections were held. However, the rise of the smaller parties has thrown doubt into the mix — particularly LAOS, which left the existing coalition following disagreement over the second bailout.

Rise and fall of the euro

The election will therefore be under close scrutiny by European leaders who have injected so much cash into keeping Greece in the euro and the “European project” afloat.

Is Greece still at risk of leaving the euro?

The restructuring of the private sector debt gave some breathing space for the country, but its economy remains fragile and there is speculation further restructurings may be necessary.

Is Greek restructuring still not enough?

The debt crisis is also far from over, with fears now centered on Spain and Italy. If these economies — the eurozone’s third and forth biggest — are sucked into the crisis fears around of the bloc’s collapse will resurface.

If Greece exited the euro, it would be liberated from the eurozone’s fixed exchange rate, allowing it to become a more competitive exporter and — as it unshackles its currency — an attractively cheap tourist destination.

But it would come with a heavy price. It would still leave Greece in debt and reliant on handouts that former eurozone partners would be less willing to supply. It would also mean Greeks would face higher prices for imported goods.

It is also likely to drive people out of their homeland as they seek to escape lower wages and higher taxes. This could set back the country’s economic recovery by years.

http://edition.cnn.com/2012/04/12/business/greece-election-explainer/index.html

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