Greek PM Faces New Challenges

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Thanassis Stavrakis / AP

Greek Prime Minister Kostas Karamanlis and his wife Natassa wave to the supporters.

Greek Prime Minister Kostas Karamanlis has won reelection — but only just — in a heated election that gave him a shrunken parliamentary majority that may imperil implementation of key economic and social reforms. With all of Sunday's votes counted, final returns late Monday showed Karamanlis, who swept to power in 2004 as Greece's youngest prime minister, won about 42% of the poll against 38.9% by the rival Panhellenic Socialist Movement, or PASOK. The result was as much a personal victory for Karamanlis, who took office four years ago without ever serving a government post, as it was a blow for PASOK leader George Papandreou, whose party was left in disarray after its worst showing in 30 years.

"The people have decided," Papandreou said in a concession speech six hours after initial polls predicted his defeat. "PASOK waged a strong fight but it didn't manage to win." Minutes later, a beaming Karamanlis, 51 and of noted political pedigree, arrived at the central election headquarters, claiming a victory he described as "a strong mandate for a new and more dynamic beginning," setting off a storm of celebrations that eclipsed weeks of grief — and anger — that swelled from a deadly spate of forest fires that killed 65 people and left much of the country ravaged.

Capturing 152 seats in parliament — 13 fewer that those held by conservatives in their first term — Karamanlis promised to press ahead with much-needed reforms. He also pledged to assist thousands of fire victims, shunning mention of Papandreou, who billed the vote "a referendum on the right" at the end of a month-long campaign. Karamanlis also made no mention of Georgios Karatzaferis, the leader of the Popular Orthodox Rally, or LAOS, that won over 3% of the vote, becoming the first far-right populist party to enter the Greek parliament since the tumultuous fall of a military junta the ruled the country between 1967 and 1974. A former conservative stalwart whom Karamanlis expelled in 2000 for his extremist rhetoric, Mr. Karatzaferis benefited from the backlash against the socialist party, attracting protest voters who ostensibly wanted to vent their anger at the two main parties than espouse LAOS's controversial views — including claims that the Jews were behind the Sept. 11 attacks.

For decades, power in Greece has gone back and forth between two main political parties dominated by two political dynasties that have divided Greeks, sometimes bitterly so. In recent years, though, and as Greece anchored its interests deeper into the European Union, both parties have found it increasingly difficult to differentiate themselves from each other ideologically.

A canny, cigar-chomping lawyer, Karamanlis retained a consistent lead against the socialists despite a bond-trading scandal and relatively austere economic reforms that his government implemented since taking office nearly four years ago. The catastrophic fires, however, and widespread accusations of what was seen as a slow and inept state response, cast him on a sudden defensive. Facing his biggest test of leadership, Karamanlis ditched the campaign trail to manage the crisis, pushing through a fast compensation plan for victims and vowing to rebuild all burned homes. He then unveiled a flurry of financial incentives, including higher pensions and tax breaks, and threatened to take Greeks on another trip to the polls if his New Democracy party failed to win an outright majority in parliament. That carrot-and-stick strategy, said analysts, put voters at a clear crossroads, weighing Karamanlis' stolid leadership and economic successes against their yearning for a protest vote that could spell a return to socialist rule, or political turmoil. "Ultimately, voters picked the candidate they had the greatest faith in," said Maria Karakliouni of RASS-MARC polling agency.

Even so, Sunday's vote left conservatives with a shrunken parliamentary majority that may leave the new government vulnerable to interests that oppose programs seen as essential to keeping pace with European Union partners. "Of course we would have wanted a bigger, more comfortable majority," said Kyriakos Mitsotakis, a conservative lawmaker. "But the size of the majority will not affect how effective our government will be." New Democracy held 165 of the 300 seats in the outgoing parliament. Karamanlis, who describes himself a "compassionate conservative," called for an early trip to the ballot box ahead of the August wildfires, seeking a fresh mandate for crucial social and economic changes. With 20 percent of the nation's households living below the poverty level, or less than $16,000 a year, Greeks ranks among the European Union's poorest members.

Only this year was Greece able to escape threats of sanctions by the E.U. following three and a half years of relatively austere fiscal policy that brought the country's bloated budget deficit in line with financial rules that underpin the stability of the euro. Selling off struggling state-owned companies and overhauling the country's debt-ridden pension system will figure high on government's second-term agenda. Greece's rapidly aging population and system of generous pension benefits are "the main risk factors to Greece's long-term fiscal sustainability," according to a recent report by the ING. As the European Union's fastest-aging nation, Greece could have one pensioner for every worker by 2040, threatening a blowout in a budget deficit that conservatives managed to slash from 7.9% the gross domestic product in 2004 to a forecast 2.4% this year.

Karamanlis's reelection also heralds a tougher stance on foreign policy issues. In nationwide televised debate that offered the most intimate glimpse of the top candidates ahead of Sunday's poll, a stern-looking Karamanlis warned he would block Macedonia's efforts to join NATO and the European Union unless a decade-long dispute over the name of the neighbouring state was resolved. The threat sparked a diplomatic tiff between Athens and Skopje since the debate, with Macedonian President Branko Crvenkovksi saying he would withdraw from the U.N.-brokered name talks if Greece vetoed his country's designs to join NATO. Greece argues that Macedonia's name implies territorial claims against its region of the same name.