Likely Scenarios for Greek Elections/Impact on USG interests

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E.O. 12958: DECL: 2019/09/25
TAGS: MARR PGOV PREL ECON EFIN MK TU GR
SUBJECT: Likely Scenarios for Greek Elections/Impact on USG interests

REF: ATHENS

CLASSIFIED BY: Deborah A. McCarthy, Deputy Chief of Mission, State,
EXEC; REASON: 1.4(B),(D)


1. (C) Summary: All indications point to PASOK winning narrowly;
the vote is more a protest against ND than a vote for PASOK and its
policies. An interregnum leading to a second round of elections in
November resulting in a stronger PASOK government is also possible.
A PASOK government is unlikely to have a strong public mandate to
undertake reforms - a PASOK majority of 151-3 seats will not be any
more able than ND with 151 seats to take on the government
bureaucracy, corruption, and the structural changes needed in
Greece. Having said that, the broad outlines of Greece's foreign
policy will remain - we do not anticipate any red lines being
crossed. But as PM, George Papandreou will work to improve the
atmosphere in Greece's relations with its neighbors, and this may
help over time to lead to confidence building in the Aegean, and an
artful solution to some details on the Macedonia name. He may even
personally retain the foreign ministry. The economic crisis will
constrain Greece's ability to step up its contributions to common
efforts in Afghanistan, and other emerging democracies of
importance to us. End Summary.



The Political Context: It's the Economy, Yianni!

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2. (C) The impact of the financial crisis and resulting economic
slowdown in Greece and people's desire for change have emerged as
the key themes of the election, with both governing New Democracy
and opposition Panhellenic Socialist Movement (PASOK) using these
themes to beat each other up and distinguish themselves as the
party of reform. Karamanlis has taken an austere, serious tone,
arguing that the road back to economic health will be tortuous and
long, will require pain and sacrifice on the part of all, and ND
leadership to help weather Greece through it all. In what some
Greek media are calling an attempt to evoke President Obama's
campaign message of hope and change, opposition leader George
Papandreou has taken a lighter, more positive tone, promising
significant changes in his first 100 days and offering a full menu
of populist measures to please lower and middle class voters. Some
of his proposals range from more pay for public servants,
re-nationalization of state enterprises only recently privatized,
nationalization of profiteering banks, a clean-up of government
corruption once and for all, and overnight tax reform.




3. (C) Having been down the road of unfulfilled promises more than
once, Greek voters, however, appear to be viewing the campaign show
with pessimism and suspicion. Embassy conversations with Greek
voters ranging from locally hired Embassy staff to professional
economists and business leaders indicate that most look at
Karamanlis' call for a new mandate as "too little, too late," and
ask with frustration why he and ND did not do more earlier (e.g.,
like when they rolled into office in 2004 on a platform of change
and economic reform and armed with a fresh public mandate of 168
parliamentary seats). Most do not trust Papandreou's promises
either, but are willing to give PASOK a chance - perhaps more out
of desperate hope and a desire to punish ND than confidence in its
abilities.




4. (C) Polling, press reports, and our conversations with Greeks of
all political orientations indicate that PASOK is likely to emerge
the victor, but with a weak public mandate. Despite PASOK's
populist campaign rhetoric, a PASOK with 151 parliamentary seats on
October 5 will face the same constraints and challenges as ND with
151 parliamentary seats on October 4. On the morning after its
election victory, PASOK will be under pressure to deliver on its
campaign promises. It will also face pressure from an increasingly
inflexible European Commission and international markets to develop
a clear plan to deal with the burgeoning deficit (projected by some
domestic bank economists to spike to over 9 percent in 2009) and
external debt (projected by the IMF to reach 109 percent in 2009)
within a limited amount of time. Despite having an ambitious,
albeit ambiguous, reform agenda, Papandreou will also be wary of
alienating key constituencies that might give ND an excuse and the

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desire to force another parliamentary election next March when
Parliament must elect a new President of the Republic.



The Election Mechanics

--------------


5. (C) The latest public polling on the October 4 parliamentary
elections all show PASOK 5-8 percentage points ahead of the
governing New Democracy (ND). In a recent development, PASOK
President George Papandreou appears to have overcome lingering
public reservations about his leadership potential by nosing out
sitting PM Costas Karamanlis in polling questions on personal
capacity to lead the country. We caution however that the major
parties' internal polling (and thus presumably more accurate than
the newspapers' "push" polling) show a tighter race, with ND-linked
pundits leaving open the possibility of an upset win by Karamanlis.
However, in our conversations with party insiders, both sides are
preparing for a PASOK win. Under the current election law, the
first-past-the post party gets a premium of 40 seats, but the
leading party must gain roughly 41.5 percent of the votes on Oct. 4
to form a majority of 151 plus in the parliament. The second-tier
parties on the right and left fringes are expected to poll fairly
well, with the far right (nationalist and anti-immigrant) LAOS
party expected to do better than usual due to defections from ND's
base.




6. (U) If no party earns over roughly 41.5 percent of the vote and
150 seats, there will be a period of up to nine days when the
President of the Republic gives the three leading parties three
days each, successively, an opportunity to form a coalition
government. If no party succeeds in forming a majority coalition,
the President nominates a caretaker government to organize another
round of elections within thirty days (i.e. by mid-November). The
next parliamentary election will take place under a new law that
will give the first-past-the-post party a premium of fifty seats
which, barring extraordinary developments, should give PASOK a
comfortable majority.



Likely Scenarios:

--------------


7. (C) --Most Likely: George Papandreous captures 41.5 percent
of the vote or slightly above and gathers 151-153 seats. This is a
vote against ND more than a vote for a PASOK program. He forms a
precarious government with no coalition partners.

--Somewhat likely: George Papandreou does very well and reaches
above 42.5 percent, gathering 155-160 seats. He forms a strong
one-party government with a mandate for action.

--Less Likely: Kostas Karamanlis turns the tables, gains momentum
over the last week, and reaches, or passes Papandreou by a hair,
but both parties score below the 41.5 percent needed to gain 151
seats as the fringe parties do better than expected. Neither is
able to form a government alone and the process for establishing a
coalition government starts.



Note on coalition prospects

--------------


8. (C) A coalition government is highly unlikely under any
scenario. Both big parties vehemently reject the notion. Politics
in Greece is personal, with historical family-oriented factions
still very active, and it would be extraordinary, for example, for
the Mitsotakis clan faction in ND to offer any advantage to the
Papandreou or Venizelos faction in PASOK. While the LAOS party is
actively seeking to position itself as "the heart of New
Democracy," in part by poaching ND members, few believe a ND-LAOS

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coalition would emerge. Influential figures on the left of ND have
told us they would leave the party were that to happen. Only once,
in 1989, did a coalition government emerge - and that was a
technical and temporary alliance between ND and the Communist Party
of Greece (KKE). Nobody foresees any such coalition forming today.
The most likely of these unlikely coalitions might be a
PASOK-Syriza ("Coalition of the Left) government, if PASOK wins
slightly fewer than 150 seats. But Papandreou would be tempted to
avoid that, and press for a second round in order to garner the 50
seat premium under the new election law.



PASOK Government: Implications for US Policy Interests

-------------- --------------


9. (C) The most likely outcome of the Oct. 4 balloting will be a
weak-to-stable PASOK government, elected as a protest to ND's poor
economic stewardship during the past 5 years and with a sliver of
hope that PASOK will bring economic change. Security concerns
relating to the December 2008 rioting in Athens and elsewhere in
Greece, and perceived uncontrolled migration into Greece of people
from conflict zones in the Middle East, S. Asia and Africa played
heavily in the results of last June's European Parliamentary
election (which saw massive abstention of ND voters and erosion of
ND support to LAOS, leaving PASOK the "last man standing").




10. (C) A PASOK government's foreign policy priorities (ref A)
would largely track with what we have seen from ND - the broad
outlines of Greece's strategic interests won't change. Cyprus,
Greece-Turkey differences in the Aegean, and the Macedonia name
issue all promise to feature prominently in a new government's
policy framework, and we don't expect any existing red lines to be
crossed. This is particularly true in the case of a narrow PASOK
majority, not least because there will be Presidential elections in
March of 2010, and ND could always use them to force a new
parliamentary election if PASOK gives an opening. So caution will
be the word of the day in foreign policy. However, Papandreou
himself has promised that his government will work hard to improve
the atmospherics in Greece's relations with its neighbors. This
itself might help us to bring the Greek and Turkish militaries
closer to agreement on confidence building measures in the Aegean
which would help turn down the temperature and channel their
differences into a more productive dialogue. On Cyprus, we see no
great difference in the approach of either candidate - both will
support Nicosia leading the process, both support the EU context to
the discussions and neither would want to be seen to publicly press
the Greek Cypriots to a compromise. So far, Cyprus has only
featured as a campaign lever: in a September 23 TV debate,
Karamanlis accused Papandreou of supporting the failed Annan Plan
while he, Karamanlis, allowed Greek Cypriot voters to vote their
conscience. Papandreou countered that Karamanlis himself supported
the yes vote and sent letters to European voters to that effect and
that Karamanlis' deputes muddied the waters by supporting the no.




11. (C) Papandreou, a former foreign minister and for the next two
years President of the Socialist International, has signaled that
he intends to be personally more active in foreign policy than was
his predecessor. There is a chance he will decide to personally
retain the foreign minster portfolio during the early months of his
government. He has already laid down markers against pursuing
Karamanlis' lean toward Russia - sparking a campaign eruption when
he said he would reassess the Burgas-Alexandropoulos oil pipeline
deal and the Southstream gas pipeline commitments. He will
certainly reach out to his counterparts in Turkey and the Republic
of Macedonia. His party has also signaled it wants to be more
active in the EU. On global issues, he is interested in climate
change, will support the GoG's commitment in Afghanistan, and may
even increase Greek development assistance - contingent on
addressing Greece's severe budget constraints.




12. (C) We do not expect any dramatic change in the GoG's

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approach to the Macedonia name dispute. The ND government made
public Greece's bottom line solution: a compound name for the
Republic of Macedonia with geographic modifier used "erga omnes."
Because any agreement would require a parliamentary vote to be
ratified, including all of PASOK votes some of which are from
Northern Greece, we do not believe that a PASOK government will
depart from the existing proposal. They will continue to look at
the NATO and EU accession processes as "useful tools" to compel
Skopje to compromise. They will however seek to subsume the name
dispute into a broader policy framework of support for the Western
Balkans' Euro-Atlantic prospects, thus hoping to take some of the
fire out of it. At the same time, we believe Papandreou will work
to improve the public context for resolving the issue - with fewer
of the dripping-with-sarcasm polemics we have seen directed at
Skopje in recent months over the latter's "mania" with Alexander
the Great. In a new more positive environment (which will take
effort from Skopje as well) we can imagine the possibility of
reaching agreement to disagree on some elements of usage of the new
name for the Republic of Macedonia. This will take months rather
than weeks however, and we will press the new GoG not to overplay
their hand during the European Council session in December that
will approve or deny opening talks on the Republic of Macedonia's
EU accession.


13. (C) On global issues we anticipate that a PASOK government
will be constrained by its deteriorating public finances and the
optics of giving overseas when Greek citizens at home are losing
their jobs and finding it difficult to make a living. The Embassy
will nevertheless continue to urge the new government to continue
and enhance Greece's support for stability in Afghanistan and
Pakistan (sustaining or perhaps increasing Hellenic Aid's budget),
and will look for partnerships to leverage its limited resources.
We do not anticipate Greece will suddenly sign a Proliferation
Security Initiative Shipboarding Agreement, but we might have
better chances of bringing Greece and Greek shippers along on the
Contact Group on Piracy off the Coast of Somalia, and prevail on
them to sign the declaration on international best practices for
self-defense. We have seen no indications that a PASOK government
would change the GoG's good cooperation with us on
counterterrorism.


14. (C) On human rights issues, Papandreou enjoys strong support
from a wide spectrum of domestic NGOs and labor unions, all of whom
will expect a PASOK government to provide more attention--and
funds--to causes such as Roma education, support for migrants and
asylum seekers, and combating trafficking in persons. Papandreou
has previously promised to revise migration laws to facilitate
Greek citizenship for second-generation immigrants, and PASOK's
history of reducing Orthodox Church-state ties has minority
religious groups hopeful for progress on an Athens mosque, a Muslim
cemetery, and relaxed restrictions on "house of prayer" permits.



Interregnum/Second Round: Cautionary Note:

-------------- --


15. (C) There is a slight chance of an interregnum of about 6
weeks while parties attempt and fail to form coalition governments
and elections are held again. Many Greeks recall that the last
time something like this occurred was in 1996, when the Simitis
government came to power. It was during that several week period
of lack of clear authority that the Imia/Kardak crisis erupted and
Greece and Turkey nearly came to war. We do not anticipate this
happening again, notwithstanding the recent Turkish Air Force
flights over the Greek inhabited islands of Agathonisi and
Farmakonisi. But it bears watching. In the event of a six-week
interregnum, we won't be able to count on Greece for any dramatic
initiative, for example with regard to their OSCE Chairmanship.




COMMENT:


16. (C) The October 4 election is one of contrasts between the
message of austerity on the part of Karamanlis vs. one of hope on
the part of Papandreou. Karamanlis has promised two difficult

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years with privatizations, shrinking of the public sector and tight
budgets, while Papandreou promises to raise public employee
salaries slightly above inflation levels and seek to boost economic
growth. Karamanlis is trying to energize the ND base, focusing
increasingly on international red meat issues and criticizing
Papandreou for being too aligned with US policies, while Papandreou
is fighting for the middle, aided by the fact that he now longer
has to protect his left flank from Syriza. Meanwhile, Karamanlis
has to stem the hemorrhaging of voters to the right wing LAOS.
Karamanlis' acknowledged campaigning and oratorical skills, which
five years were viewed as signaling a decisive reformer are now
viewed as empty promises with voters asking why these tough fiscal
reforms were not enacted in the past five and a half years. ND's
claims that it inherited its problems from PASOK ring hallow after
two consecutive ND administrations and ND's only defense against
PASOK's accusations of nepotism and partisan hiring practices is
that PASOK did the same when it was in power. Yet, in contrast to
PASOK"s slate of relatively unknown younger faces, Karamanlis has
stacked the ND list with old party cronies, further adding to
public perceptions that he has run out of gas. Whoever wins the
election may find it was indeed a pyrrhic victory with the next
government inheriting enormous debts a widening deficit, and a pile
of IOUs. End Comment.
Speckhard