Likely Scenarios for Greek Elections/Impact on USG interests

C O N F I D E N T I A L SECTION 01 OF 05 ATHENS 001513 SIPDIS AMEMBASSY ANKARA PASS TO AMCONSUL ADANA AMEMBASSY ASTANA PASS TO USOFFICE ALMATY AMEMBASSY BERLIN PASS TO AMCONSUL DUSSELDORF AMEMBASSY BERLIN PASS TO AMCONSUL LEIPZIG AMEMBASSY BELGRADE PASS TO AMEMBASSY PODGORICA AMEMBASSY HELSINKI PASS TO AMCONSUL ST PETERSBURG AMEMBASSY ATHENS PASS TO AMCONSUL THESSALONIKI AMEMBASSY MOSCOW PASS TO AMCONSUL VLADIVOSTOK AMEMBASSY MOSCOW PASS TO AMCONSUL YEKATERINBURG 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! -------------- --- ¶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 ATHENS 00001513 002 OF 005 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 ATHENS 00001513 003 OF 005 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 ATHENS 00001513 004 OF 005 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 ATHENS 00001513 005 OF 005 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