Winner faces uphill battle amid a paralyzed economy that is threatening financial markets.
Supporters of the New Democracy party at a campaign rally with the party's leader, Antonis Samaras, in Syntagma Square in Athens, Greece, June 15, 2012. Greeks head to the polls on Sunday for the second time in two months with a pervasive sense of dread that any government that comes to power will fail to resolve the political and economic turmoil that threatens the country's future -- and the financial stability of Europe itself.
ATHENS, GREECE - Greeks head to the polls Sunday for the second time in two months with a pervasive sense of dread that any government that comes to power will fail to resolve the political and economic turmoil that threatens the country's future -- and the financial stability of Europe itself.
Even if the establishment center-right party New Democracy ekes out a victory in a race that polls show as tight, Greece faces weeks or months of negotiations with European lenders over the terms of its austerity program, which all parties agree are too onerous to enforce on its shrinking economy.
A victory by the leftist party Syriza promises a more serious confrontation, especially with Germany, over how -- and perhaps whether -- to keep Greece in the eurozone.
The winner will also face an uphill battle to inject confidence into a paralyzed economy that depends heavily on the continued infusion of money by the European Central Bank. The bank, based in Frankfurt, Germany, has become the last lifeline for a financial system that has all but seized up and a deficit-ridden government that has little ability to raise new revenues or borrow money to continue its operations.
On Monday, as Greece tries to determine whether it has a viable new government, leaders of the G-20 will gather in Mexico, where they are expected to debate ways to keep the Greek crisis and the weakness of the bigger economies of Spain and Italy from undermining the euro and dragging the global economy into a new recession. Central bankers from Tokyo to Washington have pledged to intervene in financial markets if necessary to shore up those economies, but the Greek drama nonetheless threatens to keep investors on edge for weeks to come.
"I would be very surprised if -- ta-da! -- everything is clear," said Peter Westaway, chief economist for Europe at Vanguard Asset Management. "We could be in for a protracted period of uncertainty, which would not be helpful, either."
If, as in the May elections, there is no clear winner, political leaders have said they are committed to forming a government no matter what. In any event, the new government will have to open new talks with the big European powers and press for a more generous bailout. "They will be sitting around the table with each other, and then some compromises can be struck," Westaway said.
There is no mechanism to kick Greece out of the euro, and the two leading candidates say they have no intention of taking Greece out voluntarily. Greece could be forced to fend for itself if the European Central Bank decides that it is a fool's errand to keep replenishing Greek banks that have no collateral or credibility. But the bank's job is to protect the euro, and it has repeatedly argued that contagion from an exit by Greece could outweigh the costs of keeping it afloat.
"It's in the hands of the ECB, and the ECB doesn't want to be responsible," said Simon Tilford, chief economist for the London-based Center for European Reform. "The ECB will come under great pressure to rein in support for the Greek banking system, but the bank is quite concerned about the implications and the risks of contagion if a country leaves the euro."
Others increasingly warn of the risk of an "accident" --a bank run somewhere in the eurozone that spirals, or the Greek government running out of money to pay salaries and pensions after paying back creditors -- which could quickly precipitate into market panic and social unrest.
Around 80 percent of Greeks want to remain in the European Union and within the eurozone, but they also want a radical renegotiation of the bailout terms. European leaders see this as a contradiction, but Greek leaders see it as necessary to fight a deepening recession. A restructuring of private debt as part of a second bailout in February brought Greece's debt to 160 percent of gross domestic product, down from 165 percent but not nearly enough to keep the debt in check or revive the slumping economy.
A new round of negotiations also became inevitable after Spain, a much bigger economy, got a $125 billion bailout for its banks on terms that are much less restrictive than the austerity package demanded of Greece, which unlike Spain had run up a huge fiscal deficit in better times.
The leader of the New Democracy party, Antonis Samaras, who failed to form a government despite placing first in last month's elections, now talks about pushing for a better deal. Syriza's leader, Alexis Tsipras, alternately talks about "ripping up" the deal and seeking a better plan.
Some investors and much of the country's business elite are depicting a Syriza victory as a kind of Armageddon, with the countdown toward a Greece exit from the eurozone beginning on the day it takes power. Yet there is also a consensus that Tsipras' central contention -- the second bailout deal is unworkable and needs to be replaced -- is basically right.
"The memorandum of understanding is dead," said Anthony Kefalas, adviser to the president of Greece's leading business lobby, the Hellenic Federation of Enterprises. "It is politically dead, because in the previous elections a majority voted against it. It is also economically dead."