Greece's ruling Socialists face a key vote in parliament Tuesday amid growing fears that discontent within the ruling party could force a change in government, opening up a risky new chapter in Europe's widening debt crisis.
The vote on a property-tax law is expected to pass on the back of the Socialists' narrow four-seat parliamentary majority, analysts say. The law is one that Greece has promised its international creditors as it scrambles to secure fresh aid and avoid default.
Many analysts, however, see the vote as a first test of confidence in the ruling Socialist government as it tries to push unpopular reforms. They fear that further austerity measures that must also be voted upon in the weeks ahead may bring about an open revolt within the party, forcing Prime Minister George Papandreou to go to the polls.
"Everyone is waiting for the issue that will lead to a rebellion within the Socialist party. It probably won't come Tuesday, but it is coming," said David Lea, an analyst at Control Risks, an independent risk consultancy. "At that point, the only realistic option for the government is to call early elections, which would be the last thing the country needs."
Immediately at stake is an €8 billion ($10.8 billion) bailout payment from the so-called "troika" of the European Union, European Central Bank and the International Monetary Fund—which Greece needs within weeks to avoid going broke. Without parliamentary approval for the new austerity measures, Greece may not be able to secure further funding from its creditors, who are demanding tangible proof that the government will keep its promises after failing to implement earlier commitments.
European Commission spokesman Amadeu Altafaj Tardio said Monday that finance ministers won't decide at their Oct. 3 meeting in Luxembourg whether to give Greece the €8 billion payment, now due by mid-October. The ministers will next meet a month later but a decision on the next aid tranche could be made sooner.
In the latest sign of public protest against austerity measures, thousands of Greek public transport workers walked off the job Monday in a 24-hour strike that brought traffic chaos to the streets of Athens.
Elected in a landslide victory in October 2009, the Socialist, or Pasok, party has seen its popularity plummet after two years of austerity measures it has implemented in exchange for a €110 billion bailout from its fellow euro-zone members and the IMF.
Since then, its parliamentary majority has shrunk by six seats as rebel lawmakers have bolted the party, leaving the Socialists with 154 seats in Greece's 300-member parliament. In the latest public opinion polls, the Socialists would garner 15.5% of the vote if elections were held tomorrow—more than five percentage points behind the opposition New Democracy party.
Worse, public opinion polls also show that neither of the two major parties—Pasok nor New Democracy, which opposes the austerity program—would be able to form a governing majority in parliament.
Under Greece's system of reinforced proportional representation, the party with the most votes is automatically awarded an extra 50 seats in parliament. But in order to secure a working majority of at least 151 seats—and depending on the number of smaller parties that make it past the 3% threshold to enter parliament—the leading party must garner about 36% of the electorate.
"There is a growing convergence of views that this government won't last much longer and will be dragged into announcing early elections," said George Kyrtsos, a political commentator and editor of the City Press newspaper in Athens. "But early elections won't solve anything. No party will have a clear majority. So it really looks like we're heading for a political dead end."
Such political uncertainty in Greece could spark a new round of jitters on European markets, analysts say, and could risk spreading the contagion of Greece's debt crisis to other vulnerable euro-zone countries such as Italy or Spain.
In the absence of a government to negotiate with, Greece's official creditors might tighten the purse strings and not release the next disbursement of badly needed aid, possibly pushing the country closer to default. Greek government bond yields, already at levels that prohibit the country's return to the markets any time soon, would likely hit new record highs and consumer confidence would reach new lows, economists say. The Athens stock exchange, already scraping 16-year lows, would tumble further, they say.
There would likely be new ratings downgrades and very possibly fresh deposit outflows from Greece's liquidity-strapped banks. Foreign investors, already doubtful about Greece, would likely shun the country and jeopardize its privatization plans.
As it is, the Socialists appear to be churning. None have publicly said they will vote against the new measures, but many have warned that the government cannot go it alone.
In media interviews over the past week, more than a half-dozen Socialist deputies, including Deputy Prime Minister Theodore Pangalos, have openly called for a national unity government with the opposition—something Mr. Papandreou has tried in the past without success. Now some Socialists suggest that Mr. Papandreou step down if needed to secure cross-party unity.
But there are also other voices within Pasok, some calling on the government to pick up the pace of reforms, echoing a demand by the country's creditors. Last week, two deputies called on Mr. Papandreou to sack any ministers suffering from reforms fatigue.
Monday's walk-out by Greek transport workers marks the start of more protest action to come this week against the government's austerity measures, with taxi owners due to join tax collectors in striking later this week.
Greece's two main umbrella unions—private-sector GSEE and civil-servants union ADEDY—have announced a nationwide public-sector strike for Oct. 5 and a nationwide general strike on Oct. 19.
"The political situation in Greece right now is very fluid. We are literally hanging on day by day now," said Ilias Nikolakopoulos, a professor of political science at the University of Athens. "Logically, it would be suicide both for the Socialists and the country to go to early elections. But logic may not necessarily prevail in Greece right now."
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