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What will Greek elections mean for the country's future?

By Irene Chapple, CNN
June 16, 2012 -- Updated 1542 GMT (2342 HKT)
Supporters of the Greek socialist party Pasok set off fireworks during a pre-election campaign rally in Athens on June 13, 2012. The country is set to go to the polls for a second time on June 17 after failing to form a government following the May 6 election. Supporters of the Greek socialist party Pasok set off fireworks during a pre-election campaign rally in Athens on June 13, 2012. The country is set to go to the polls for a second time on June 17 after failing to form a government following the May 6 election.
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STORY HIGHLIGHTS
  • Greeks are heading to the polls for the second time in six weeks
  • An election on May 6 failed to deliver a majority for any one party
  • The election comes amid collapsing support for the two main parties
  • The political landscape is uncertain, and the election likely to be the most important for decades

London (CNN) -- Greeks are heading to the polls this weekend for the second time in six weeks, preparing to vote in an election which could shift not only the course of the country, but of Europe itself.

What is happening in Greece?

An election on May 6 -- the first since Greece's financial crisis exploded -- failed to deliver a majority for any one party and talks to create a government failed. So, a second election was called for June 17.

The election comes amid collapsing support for the two parties -- New Democracy and PASOK -- which have dominated Greek politics since the fall of the military junta in 1974. Political support has splintered, and smaller parties have gained in response to the financial crisis which has wracked the country for almost two years. Syriza, the left-leaning party which wants to rip up the existing austerity plan, has gained support on the back of Greek's discontent.

Will debt deal save Greece?

The main parties' support of brutal austerity measures, demanded by the country's international creditors in return for aid to keep the country afloat, has left many Greeks disenchanted with the establishment.

The political landscape is now deeply uncertain, and this is likely to be one of the most keenly watched European elections in decades.

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Why are they holding an election now?

The Prime Minister, Panagiotis Pikrammenos, is a senior judge appointed to lead the caretaker administration which was put in place after talks to form a government collapsed. He was preceded by Prime Minister Lucas Papademos, a former banker and European Central Bank vice president, also an unelected politician who was sworn in as head of an interim government on November 11, 2011, after four days of political wrangling.

Papademos's mandate was to implement Greece's second bailout package, which was finally agreed on February 21, and included €130 billion ($170 billion) in new financing.

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His government was a coalition made up mainly of the historically polarized New Democracy and PASOK. That interim government was put in place after George Papandreou's dramatic final days as Greece's leader last November, in which he announced he would hold a referendum on the second bailout package before withdrawing the suggestion.

Greece plays chicken with its people

The flip-flopping sent shivers through the world markets, ratcheted up fears Europe's bailout program would fail and left Papandreou politically damaged.

The bailout deal included an unprecedented restructuring of the country's debt which sliced the value of private creditors' investments in the country in half, saving the country €100 billion from its total debt pile of more than €300 billion.

Austerity drives up suicide

However, the austerity measures also triggered violent protests, with dozens of buildings burnt in Athens earlier this year in protest. The suicide of 77-year-old retired pharmacist Dimitris Christoulas in April, in central Athens' Syntagma Square, also underscored the pain of the austerity measures.

Who's going to win?

Greece's May 6 election left no single party with more than 20% support -- a dramatic turnaround for the once powerful political parties New Democracy and PASOK, who had together scooped 77% support in the previous election.

Greece's Syriza party -- which wants to remain in the eurozone but does not support the bailout program -- has thus far reaped the benefits of voter frustration with the austerity measures. It bumped out PASOK to come second in the May 6 election, with almost 17%. New Democracy, which supports the program, narrowly won the May 6 election with almost 19% support.

Analysts expect the June 17 election to be a close race between Syriza and New Democracy. But neither is expected to win an absolute majority.

What could happen?

Journalist Pavlos Tsimas says the last election was 90% driven by anger, feeding the rise of Syriza. This election, he said, would be 80% driven by fear. As such he expects New Democracy to beat Syriza by around 3%. It could then form a coalition with PASOK, and perhaps smaller supporters.

It is unclear how long New Democracy and PASOK could maintain a long-term stable government. The longevity of such a partnership could depend on its relationship with those dictating the country's austerity measures, Tsimas said.

The election comes as the country remains volatile and at risk of spiraling deeper into crisis, despite the two bail-outs foisted upon it by the International Monetary Fund and its eurozone peers.

Its economy is shrinking, unemployment is rising and it remains unable to raise money in the capital markets which it needs to unshackle itself from the aid packages.

How will the election impact on the eurozone's debt crisis plan?

Under the terms of the second bailout, in February, the leaders of the main parties were required to agree to continue to the austerity measures after the elections were held. However, the rise of the smaller parties has thrown doubt into the mix. Alexis Tsipras, head of Syriza, told CNN he wanted the country the stay in the eurozone, but that the austerity measures were pushing the country to "hell."

Rise and fall of the euro

The election will therefore be under close scrutiny by European leaders who have injected so much cash into keeping Greece in the euro and the "European project" afloat.

Is Greece still at risk of leaving the euro?

Yes. Ratings agency Standard & Poor's has put the chance at a one-in-three. According to S&P, Greece could lose its financial lifeline if voters elect a government that opposes the terms of Greece's bailout program. Even if a pro-austerity government is elected, bringing Greece out of its slump is a huge ask. The restructuring of its private sector debt created some breathing space, but there is speculation further restructurings may be necessary.

Is Greek restructuring still not enough?

The debt crisis is also far from over, with fears now centered on Spain and Italy. These economies -- the eurozone's third and forth biggest -- have been sucked into the crisis.

If Greece exited the euro, it would be liberated from the eurozone's fixed exchange rate, allowing it to become a more competitive exporter and -- as it unshackles its currency -- an attractively cheap tourist destination.

But it would come with a heavy price. It would still leave Greece in debt and reliant on handouts that former eurozone partners would be less willing to supply. It would also mean Greeks would face higher prices for imported goods.

It is also likely to drive people out of their homeland as they seek to escape lower wages and higher taxes. This could set back the country's economic recovery by years.

As economic crisis bites, Greece's children pay the price

Elinda Labropoulou and Teo Kermeliotis contributed to this article

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