Greece set for early election in move likely to rattle global financial markets

Greek Prime Minister Antonis Samaras attends the third round of a three-stage presidential election in the Greek parliament in Athens, on Dec 29, 2014. Greek lawmakers failed for a third time Monday to elect a new president, triggering a snap el
Greek Prime Minister Antonis Samaras attends the third round of a three-stage presidential election in the Greek parliament in Athens, on Dec 29, 2014. Greek lawmakers failed for a third time Monday to elect a new president, triggering a snap election that could bring to power a radical anti-austerity party threatening to undo many economic reforms. -- PHOTO: AFP

ATHENS (AFP) - Greek lawmakers failed for a third time Monday to elect a new president, triggering a snap election that could bring to power a radical anti-austerity party threatening to undo many economic reforms.

The legislative vote, which Prime Minister Antonis Samaras proposed for January 25, is likely to further rattle global financial markets after Greece's dire finances nearly destroyed the eurozone in 2012.

Greek stocks were down just over 5 percent - having dropped a massive 11 percent earlier in the day - amid fears that the front-running far-left Syriza party could roll back tough austerity measures if it wins the election.

The rate on 10-year Greek government bonds also jumped to 9.55 percent from 8.5 percent last week.

The European Union called on Greek voters to stick by the 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.

"Through this democratic process, the Greek people will once again decide on their future." Syriza, which declined to vote in the presidential election in order to force snap 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.

"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.

"The future has already begun."

The government's 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 will have to be dissolved in the next 10 days.

Samaras said he would ask Papoulias to hold elections on January 25.

"We are close to exiting the crisis. I am here to guarantee that the country reaches the haven of safety and stability," he said in a nationally televised address.

He said the ballot would be Greece's "most decisive in decades".

Hamburg-based analysts Berenberg said there was "a risk of around 30 percent that Greece may descend into a new deep crisis with potential euro exit beyond the inevitable bout of near-term uncertainty now".

"That is a significant risk," they added.

In recent days, European Commission President Jean-Claude Juncker and German Finance Minister Wolfgang Schaeuble have warned Greeks not to change course and abandon the reforms.

Juncker's recent warning against a "wrong election result" that could see "extreme forces" take power was criticised as being out of line with the strict neutrality the EU should maintain on member state internal politics.

- 'Worst possible time' -

The European Union and the International Monetary Fund have overseen two massive international bailouts for Greece after its debt crisis nearly destroyed the single currency zone.

But even after the rescue packages worth 240 billion euros (S$387 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 contraction.

"The opposition today forced early elections at the worst possible time for the country's economy," conservative lawmaker Dora Bakoyannis said after the presidency vote.

Opinion polls show Samaras's ruling coalition trailing Syriza.

But Syriza's lead has narrowed to 3.3 percent from 3.6 percent in early December, according to a survey by the Alco polling institute for Proto Thema newspaper, indicating the party would not have a clear majority to form a government on its own if polls were held now.

The looming political stalemate, as well as Syriza's political agenda, prompted Schaeuble to warn on Saturday that any new government must respect commitments made by its predecessor.

The reforms required by the creditors have improved the government's 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 from its EU-IMF creditors to conclude an ongoing fiscal audit that will determine the release of some 7 billion euros in loans. The extension expires in February.