Greek Prime Minister wins voter mandate for cuts

Greek Prime Minister George Papandreou has beaten the odds in local elections to win a grudging mandate for radical austerity measures to overcome a debt crisis, analysts said yesterday.

With 95 per cent of polling stations accounted for, the governing Socialist party finished ahead in seven out of 13 regions and was still in the running for the country’s main cities after the first electoral round on Sunday.

The result was deemed satisfactory enough for Mr Papandreou to shelve a threat of early parliamentary elections that he made last week, angering voters and conjuring fears of fresh financial instability over the country’s tottering finances.

“It was a vote by default as Greeks saw there was no other alternative,” veteran political analyst Ilias Nikolakopoulos said.

On the eurozone government debt market where the yield, or interest rate, on Greek debt has risen in the last week reflecting a perception of uncertainty and increased risk, the yield on 10-year debt eased yesterday by 0.2 percentage points from the level on Friday to 11.121 per cent, a rate which remains high.

Mr Papandreou and the Socialists won power a year ago and soon revealed that the country was in a hidden recession. This marked a rapid spiral into crisis as debt markets, on which Greece needed to borrow massive amounts to meet a public deficit, took fright and ramped up the interest Greece had to pay.

This caused a crisis in the eurozone.

Greece narrowly avoided default in April. It was rescued with a massive 110-billion-euro loan from the European Union and the International Monetary Fund, but at the cost of a draconian austerity programme that has pushed its economy further into recession.

The Athens stock exchange jumped at the outcome of the first round of the local elections, opening with gains over two percent on Monday after shedding eight percent in four sessions after Mr Papandreou dropped the early election bombshell.

“It was an error on Papandreou’s part to pose the (parliamentary) election dilemma,” argued Angelos Tsakanikas, head of studies at the Institute for Economic and Industrial Research (IOVE).