Hellenic Business

Weeks after agreeing to an agonizing bailout deal with Europe, Greece is splintering politically ahead of national elections, raising the risk that it won't be able to make the economic sacrifices still needed to keep it in the euro.

The election, not yet scheduled but expected in April or May, is shaping up as a public revolt against Greece's political establishment, which has backed the austerity policies that are the price of financial life support from Europe and the International Monetary Fund. Mainstream politicians are increasingly painted as leading Greece into a debt trap, then impoverishing it in trying to escape.

As a result, Greece's major parties, which have promised Europe they will enact yet another round of deep public-spending cuts by summer, are struggling for support.

Half the electorate plans to vote for radical opposition groups, ranging from Soviet-style Communists to anti-immigrant neo-Nazis, according to recent opinion polls. That could lead to growing political instability even if the established parties cling to power, undermining Greece's ability to enact the drastic spending cuts and economic overhauls its creditors demanded.

"Most people here think the two big parties shouldn't have power anymore," said Costas Papaioannou, a 32-year-old teacher of German at a night school who used to be a loyal New Democracy voter but "not anymore."

Mr. Papaioannou said his German classes have "never been so full, because many people who want to emigrate are studying the language."

He said the state of the country depresses him. "We're furious at what is happening. Everyone is scared, and without hope."

Signs of economic collapse are more visible in Athens's riot-scarred center, where growing numbers of homeless people huddle under blankets outside closed stores. Burnt-out buildings exude a whiff of charcoal from violent protests. "For rent" signs adorn broken marble facades on once-bustling boulevards, while long lines of taxis wait for fares.

The austerity measures "taken under pressure" from Germany "are exceptionally adverse for the Greek people," said Giorgos Karatzaferis, head of the nationalist party Laos. Extra austerity measures due in June "are completely repulsive," he said, vowing to fight them.

"The reality is that after the elections, Greece will be an absolute mess," said Anthony Livanios, a political risk consultant. "With no clear majority in Parliament, a very high far-left representation and rising social unrest, this is a recipe for chaos," he said.

The election will be Greeks' first chance to choose their rulers since the debt crisis began in late 2009. Since last fall, Greece's government has been led by an unelected, technocratic prime minister, Lucas Papademos, supported by the two established parties: the conservative New Democracy party and the center-left Socialists, known as Pasok.

Mr. Papademos's mission was to secure a €138 billion ($183 billion) loan package from Europe and the IMF to keep Greece afloat. On Monday, a government spokesman said elections will be held on April 29, May 6 or May 13.

New Democracy, led by Antonis Samaras, is likely to be the largest party in the new Parliament. Many analysts expect it to form a bipartisan coalition with Pasok. But the two parties' combined support is only 35% to 40%, according to several opinion polls. In Greece's 2009 elections, they won around 75% of the total vote. The decline shows the price they are paying for supporting unpopular austerity policies, and for their past misrule.

To get the bailout, Mr. Samaras and Socialist leader Evangelos Venizelos both had to promise Europe in writing that they would continue the austerity measures. Among other promised steps, they pledged to pass legislation by June that will cut public spending by an additional 5.5% of gross domestic product. Economists say the cuts will further depress the Greek economy, which has contracted 14% in the past four years and is expected to shrink by a further 5% or more this year.

Support for the new bailout deal has cost the major parties heavily. Until recently, New Democracy hoped to win outright, but now has the backing of only around 25% of voters, polls suggest. Pasok, which won a landslide victory in 2009, has slumped to 15% or lower.

More than one in five Greek workers is unemployed, including half of those under the age of 25. Homelessness, personal bankruptcies, crime, suicide and mortality from ill health are rising. Young, educated people are packing their bags.

On Sunday, Greeks' anger spilled over into violent protests during parades to mark national independence day. In Heraklion, capital of the island of Crete, the parade was called off after anti-austerity protesters fought with police. Similar incidents were reported around the country. In Athens, thousands of police locked down the city center to keep demonstrators away from dignitaries.

George Vourtsis, a 30-year-old unemployed accountant, came to watch the parade but couldn't get close thanks to the metal barriers. He can't find work, forcing him to live with his parents. His father, the main breadwinner, has had his pension cut by 25% to €900 a month under the austerity program.

Mr. Vourtsis is among the one in four Greeks who say he or she wants to leave the euro and return to the old national currency, the drachma. "We who are unemployed and are already living a reduced quality of life have nothing to lose," he says: "It's the banks who have something to fear."

He doesn't know whom he will vote for, but "certainly not" New Democracy or Pasok, he said.

The two established parties' strength is dwindling just as Europe is hoping they can step up the pace of economic overhauls. In Berlin and other euro-zone capitals, policy makers are increasingly worried that Greek politicians won't be able to implement unpopular structural changes after the elections.

Political analysts say Greek opinion polls often prove unreliable. "But you cannot discount the social dynamics behind the polls," said George Kyrtsos, a leading political commentator and publisher of the CityPress newspaper.

"People are really frustrated. It's easy to see that the electorate is shifting toward the extremes" in a reaction against the austerity plan, Mr. Kyrtsos said. The two major parties will be weakened, so you can foresee that this policy won't be implemented effectively."

Optimists say New Democracy and Pasok still have a good chance of forming the next government if they team up, despite their loss of popularity. Greece's electoral system awards 50 bonus seats in the 300-seat Parliament to the largest party, which is likely to be New Democracy.

"I expect the political forces in favor of the euro to prevail. Then it's up to them to make a coalition," said Yannis Stournaras, head of Athenian economics think tank IOBE.

But the two parties' rivalry and slender expected majority would make theirs a fractious government, hostage to dissenters, confronting a radicalized opposition and another wave of street protests without a popular mandate.

In spite of shaving more than €105 billion off its bond debt in this month's default and restructuring, Greece's total public debt is still around €330 billion, or more than 160% of GDP, a level most economists say it can't repay. Greece's budget deficit is stuck at around 10% of GDP, thanks to the shrinking economy.

Despite Greeks' loss of confidence in austerity—more than 60% say the country is heading for bankruptcy despite the new bailout deal—few can see a viable alternative. More than 70% say they want to stay in the euro.

Many fear that a return to a weak national currency would only add to Greece's financial chaos. If Athens can't uphold its side of the bailout deal and is cut off from credit, then the only way to avoid a financial collapse of the country might be to print a national currency again.

A euro exit isn't the most likely scenario, many economists and political analysts say. If it happens, it could reignite financial panic around Europe as lenders and bank depositors flee other countries that could potentially be at risk, such as Portugal, Spain and Italy.

Even radical opponents of austerity, who reject the bailout as a form of German imperialism, have trouble saying what they would do instead.

The Wall Street Journal