Oil Rises Most in a Week in New York on Greek Election Optimism

By Ben Sharples - Jun 18, 2012 6:31 AM GMT+0700

Oil rose to the highest in a week as projections showed Greece’s two largest pro-bailout parties winning enough seats to forge a parliamentary majority, easing concern Europe’s debt crisis will worsen and crimp fuel demand.

Futures gained as much as 1.9 percent in New York. The New Democracy and socialist Pasok parties won a combined 163 seats in the 300-member legislature, according to estimates from the Interior Ministry based on partially counted returns from voting yesterday. The prospect that anti-bailout party Syriza would gain control had rattled markets concerned Greece may quit the 17-nation Euro currency union.

Oil for July delivery advanced as much as $1.57 to $85.60 a barrel in electronic trading on the New York Mercantile Exchange, the highest intra-day price since June 11. It was at $84.73 at 9:36 a.m. Sydney time. The contract increased 12 cents to $84.03 on June 15, the highest close since June 8. Prices are down 14 percent this year.

Brent oil for August settlement rose 89 cents, or 0.9 percent, to $98.50 a barrel on the London-based ICE Futures Europe exchange. The front-month price for the European benchmark contract was at a premium to West Texas Intermediate of $13.53, up from $13.28 on June 15.

Syriza received 26.6 percent and 71 seats, the results showed. The vote forced Greeks, in a fifth year of recession, to choose open-ended austerity to stay in the euro or reject the terms of a bailout and risk the turmoil of exiting the 17-nation currency.

Crown Prince

The death of Crown Prince Nayef bin Abdulaziz Al Saud in Saudi Arabia, the world’s largest oil exporter, raised the issue of succession for the second time in less than a year.

Nayef, who also served as the kingdom’s interior minister for more than three decades, was interred yesterday in Mecca in an unmarked grave. King Abdullah, who is in his late 80s, attended the ceremony.

Nayef’s death leaves Prince Salman bin Abdulaziz as a leading contender for the crown prince position, as the kingdom grapples with high youth unemployment, security issues including the threat of al-Qaeda militants and unprecedented political change in the Middle East.

To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski in Singapore at akwiatkowsk2@bloomberg.net

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Fed Seen Twisting to Risk Management to Spur U.S. Growth

By Craig Torres - Jun 18, 2012 6:51 AM GMT+0700

Federal Reserve officials must choose this week between their best estimates and their worst fears of what will happen to the U.S. economy.

Policy makers will bring new forecasts to their June 19-20 meeting and probably will mark down their April central-tendency estimate for growth of 2.4 percent to 2.9 percent this year. Lurking in the background is the risk of increasing financial stress in Europe and stubbornly high U.S. unemployment that has remained above 8 percent for 40 consecutive months.

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June 7 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke talks about the U.S. economy and the outlook for monetary policy. Bernanke, in a testimony to the Joint Economic Committee in Washington, says the economy is at risk from Europe's debt crisis, and the prospect of fiscal tightening in the U.S., while refraining from discussing steps the central bank might take to protect the expansion. U.S. Representative Kevin Brady, a Texas Republican, also speaks. (Excerpts. Source: Bloomberg)

All this could prompt them to move away from their outlook for moderate growth and tilt toward a “risk-management” strategy pioneered by former Fed Chairman Alan Greenspan, which puts more emphasis on tracking and containing high-cost threats. Both Janet Yellen, the Fed’s vice chairman, and William C. Dudley, head of the Federal Reserve Bank of New York, used the phrase in the past month.

“What we are hearing from Vice Chairman Yellen and President Dudley, and the minutes of the last meeting, is that there are more risks on the downside,” said Donald Kohn, the former Fed vice chairman who is now a senior fellow at the Brookings Institution. “The ability to combat weakness with interest rates at the zero lower-bound is limited and uncertain. In a situation like this, their reasoning is you might want to buy some insurance.”

Extend Twist

That insurance may come in the form of extending Operation Twist -- which JPMorgan Chase & Co. and Jefferies & Co. predict -- or an even more aggressive response if Fed officials see high costs in a slowdown of U.S. growth. The $400 billion program, which was announced in September and ends this month, involves selling short-term debt and buying longer-term bonds.

The Fed has about $190 billion of short-term maturities left to continue Operation Twist for another three months, based on calculations by Nomura Securities International Inc. The firm’s forecast is for no extension at the June meeting, with both Chairman Ben S. Bernanke and the Federal Open Market Committee probably indicating they could take additional easing steps, such as outright bond purchases, if economic circumstances warrant.

An extension would fit a forecast that says the U.S. economy will avoid a disaster scenario of rising unemployment and rapidly decelerating inflation. The Fed’s decision June 20 at 12:30 p.m. New York time could be more aggressive than investors expect if policy makers decide their confidence in their own forecasts is low and want to do something extra to lean against a worst-case scenario, said Vincent Reinhart, chief U.S. economist in New York at Morgan Stanley.

‘High Odds’

“We put high odds on them acting at the meeting,” said Reinhart, who was the head of the Fed board’s Division of Monetary Affairs, which develops policy strategy, under chairmen Greenspan and Bernanke. “Risk management says that you act in advance of a potential downdraft in activity because that could trigger” a collapse in demand that would be difficult to escape with the main policy rate at zero. The Fed cut the target for the federal funds rate to a record-low range between zero and 0.25 percent in December 2008.

Financial-market indicators are signaling a flight from risk. Yield spreads on the Credit Suisse U.S. Liquid Corporate Index, which tracks almost 1,300 U.S. investment-grade corporate bonds with an average maturity of about 10 years, widened to as much as 1.865 percentage points over Treasuries of similar maturity this month, the highest since January. The Standard & Poor’s 500 Index of stocks is down 5.4 percent from its 12-month high of 1,419.04 on April 2.

Greek Election

Greece’s largest pro-bailout parties, New Democracy and Pasok, won enough seats to forge a parliamentary majority, official projections showed, easing concern the country was headed toward an imminent exit from the euro. The currency rose 0.6 percent to $1.2717 at 8:14 a.m. in Tokyo today, while S&P 500 Index (SPX) futures expiring in September increased 0.4 percent.

In the U.S., payrolls increased by just 69,000 jobs last month, and unemployment rose to 8.2 percent from 8.1 percent in April. Retail sales fell for a second month, with the May total, excluding autos, slumping by the most in two years. Still, few private-sector economists are forecasting another recession. The U.S. will grow between 2 percent and 2.5 percent in each of the remaining three quarters this year, according to the median estimates in a Bloomberg News survey in early June.

Early Boost

Some of the weakness in labor markets could be explained by unseasonably warm weather that boosted hiring earlier this year. Operation Twist has helped increase housing activity, with sales of new and existing homes rising to a 4.96 million seasonally adjusted annual rate in April from 4.51 million a year earlier, based on Bloomberg calculations.

Service industries, which account for about 90 percent of the economy, grew in May, according to the Institute for Supply Management’s index of non-manufacturing businesses.

Fed officials probably won’t have complete confidence in a baseline outlook that’s likely to call for continued moderate growth and perhaps even a faster acceleration next year, said Julia Coronado, chief economist for North America at BNP Paribas in New York.

“What the Fed is worried about is that a seasonal slow patch will be converted into something worse because of the uncertainty over Europe and U.S. fiscal policy,” said Coronado, who worked on the Fed board forecasting staff. “The risks are that we will be disappointed on the downside in the U.S. economy again.”

Insuring Against Shocks

Yellen’s outlook calls for a gradual reduction in the unemployment rate and stable inflation of around 2 percent, she said in a June 6 speech in Boston. Being patient with that forecast may not be desirable, she added.

“Risk-management considerations arising from today’s unusual circumstances strengthen the case for additional accommodation,” she said. “It may well be appropriate to insure against adverse shocks that could push the economy into territory where a self-reinforcing downward spiral of economic weakness would be difficult to arrest.”

Yellen said the FOMC could begin another round of bond purchases or extend its portfolio maturity further if the expansion proceeds at an “insufficient pace.”

Dudley addressed similar concerns in a May 24 speech before the Council on Foreign Relations in New York. Hazards to U.S. growth are “skewed to the downside, reflecting risks posed by developments in Europe and the impending U.S. fiscal cliff,” he said. “The costs associated with such downside outcomes are likely to be considerably higher than the costs of realizing upside surprises.”

Fiscal Cliff

The so-called fiscal cliff includes the expiration of income-tax cuts first enacted under President George W. Bush, the end of payroll-tax reductions and automatic decreases in government expenditures, which would trim a combined 3 percentage points from growth next year if allowed to kick in, according to economists surveyed by Bloomberg News at the end of May. Instead, compromises will limit the damage to 0.8 point, sustaining the expansion, the survey showed.

In a 2003 speech that shaped monetary-policy strategy, Greenspan told central bankers in Jackson Hole, Wyoming, that “uncertainty” was the “defining characteristic” of the policy landscape, making risk management a core element of central banking.

“Policy makers need to consider not only the most likely future path for the economy but also the distribution of possible outcomes about that path,” he said. Officials “operating under a risk-management paradigm may be led to undertake actions intended to provide some insurance against the emergence of especially adverse outcomes.”

Opposite Strategy

That paradigm is the opposite of a “keep-your-powder-dry” strategy that waits for confirmation from lagging economic data to indicate the economy is turning one way or another, said Joe Gagnon, senior fellow at the Peterson Institute for International Economics in Washington.

He predicts the Fed will extend Operation Twist for another three months. Because risk-management considerations come into play, he said he won’t rule out another round of bond purchases that includes mortgage-backed securities.

“Risk management means your forecast is the most likely outcome, but you shouldn’t just set your policy on that,” said Gagnon, who worked under Greenspan and Bernanke as associate director in the Fed’s Division of International Finance. “If the risk now is a lower outcome on employment or growth, then they need to take that into account by being more stimulative than they otherwise would have been.”

To contact the reporter on this story: Craig Torres in Washington at ctorres3@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net

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Euro Gains as Pro-Bailout New Democracy Wins Greek Poll

By Keith Jenkins and Emma Charlton - Jun 18, 2012 6:30 AM GMT+0700

The euro strengthened as official projections showed the pro-bailout New Democracy party won the election in Greece, easing concern the country would be forced from the currency bloc.

The 17-nation euro extended last week’s 1 percent jump versus the dollar after figures from the Interior Ministry based on 95 percent of the votes showed the party led by Antonis Samaras won 29.8 percent of the vote and secured 129 seats in the 300-seat legislature. Anti-bailout party Syriza gained 26.8 percent and 71 seats, while socialist Pasok, with 12.4 percent, took 33 seats, according to partially counted returns posted on the Athens-based ministry’s website today.

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The euro has weakened 3.6 percent in the past six months, the worst performance among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. Photographer: Chris Ratcliffe/Bloomberg

“It’s broadly positive, but I think what you have to acknowledge is that a lot of Europe’s problems still remain,” said Robert Rennie, chief currency strategist at Westpac Banking Corp. (WBC) in Sydney. “There’s still a lot of unknowns in terms of the outlook for Europe. I don’t think those question marks have really changed.”

The euro appreciated 0.6 percent to $1.2713 at 8:25 a.m. in Tokyo from the close in New York last week. It fell as low as $1.2288 on June 1, the weakest level since July 2010. It jumped 1.1 percent to 100.54 yen from 99.49. The shared currency strengthened 0.5 percent to 80.86 U.K. pence, after touching 79.68, the weakest since May 16.

The dollar rose 0.4 percent to 79.08 yen. The U.S. currency slid 0.5 percent versus the Swiss franc to 94.50 centimes. It fell 0.6 percent to $1.0118 per Australian dollar.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, fell 0.3 percent to 81.324. The gauge earlier declined to 81.161, the lowest since May 22.

Greek Ballot

While 21 parties were on the Greek ballot yesterday, the main contest was between Syriza leader Alexis Tsipras, who has promised to renege on budget cuts demanded by creditors, and New Democracy’s Samaras, who has said his challenger was risking an exit from the currency union. Greece was left with a political stalemate after the previous general election on May 6.

Since the initial vote, the euro weakened 4.8 percent against the yen and lost 3.4 percent versus the dollar through last week as investors sought havens from the turmoil. The crisis escalated on June 9 when Spain asked for a bailout of as much as 100 billion-euro ($127 billion) to prop up its banks.

Yesterday’s vote forced Greeks, in a fifth year of recession, to accept austerity or reject the bailout conditions. Leaders of the Group of 20 nations begin their annual gathering today in Los Cabos, Mexico, with French President Francois Hollande and German Chancellor Angela Merkel opting not to leave for the event until after the outcome in Greece is known.

Bailout Adjustments

European governments indicated a willingness to adjust the terms of Greece’s bailout package as long as a new government “swiftly” emerges from the election.

“There’s no time to lose or leeway for small party games,” Samaras said yesterday after placing first in the vote that will force him to rule with the third-place socialist Pasok party. “The country must be governed.”

Greece’s international monitors will “return to Athens as soon as a new government is in place to exchange views with the new government on the way forward,” euro-area finance ministers said in an e-mailed statement following the vote. The ministers sought “the swift formation of a new Greek government that will take ownership of the adjustment program.”

Above Average

Through most of the financial and political turmoil in Europe, the euro has held above its lifetime average of about $1.21 as investors put their faith in Merkel to keep the monetary union in place.

“The euro has been trading above $1.27 on the back on a possible coalition on the right side of austerity measures,” said Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank Ltd. in London. “If New Democracy get enough to form a coalition they’ll stick to the mandate and maintain the euro which will be a big relief to markets around the world.”

While forecasting little change in the euro versus the dollar, a majority of the world’s biggest foreign-exchange trading firms surveyed last month by Bloomberg News said the loss of a member such as Greece would risk more departures and send the currency lower.

The median year-end estimate for the euro is $1.25, according to more than 50 analyst estimates compiled by Bloomberg. The forecast has come down from $1.30 as recently as May 18.

Reduced Bets

Hedge funds and other large speculators reduced trades that would profit from a drop in the euro against the dollar last week from a record the week before, figures released on June 15 by the Washington-based Commodity Futures Trading Commission showed.

The difference in the number of wagers on a drop in the euro against the greenback versus those on an advance was 195,187 contracts on June 12, from 214,418, the data showed.

The premium for three-month options granting the right to sell the euro against the dollar relative to those allowing for purchases was 2.83 percentage points at the end of last week, up from a low this year of 1.41 percentage points in March. The so- called risk reversal rate has eased from 3.47 percentage points last month.

The implied volatility for one-month euro-dollar options, which indicates expected swings in the underlying currencies, reached a high of 13.29 percent last week. While that’s up from 8.25 percent in April, it’s below last year’s peak of 18.42 in September. The JPMorgan G7 Volatility Index rose to 11.88 this month from 8.84 in April, the least since November 2007.

Smaller Union

The most probable outcome is the euro will evolve into a smaller union, including France, Germany, Italy and Spain, and underpinned by stronger coordination and financing, Pacific Investment Management Co. Chief Executive Officer Mohamed El- Erian wrote in a May 15 report outlining the Newport Beach, California-based company’s medium-term economic outlook.

Rather than a euro failure, an orderly Greek exit from the currency has Nobel laureate Joseph Stiglitz predicting a stronger and more stable monetary union.

“If you can weather the storm and haven’t put your bets too short term, probably the euro is going to go up,” Stiglitz, a professor at Columbia University and winner of the 2001 Nobel Prize in economics, said in a June 4 interview at Bloomberg’s New York headquarters. “It’s likely there will survive some rump version,” centered on Germany, he said. If it includes countries such as France, the “euro would likely appreciate.”

Merkel, Sarkozy

The euro is down from this year’s high of $1.3487 on Feb. 24, and has depreciated about 6.1 percent during the past year against a basket of nine developed-market peers, according to Bloomberg Correlation-Weighted Indexes.

For much of the crisis, speculating on a weaker euro meant betting against the ability of Merkel and then-French President Nicolas Sarkozy to keep the currency union together. They said in a September statement that “it is more than ever indispensable” to “assure the stability of the euro zone.”

Sarkozy since became the first French president in 30 years to fail to win re-election. The standing of Hollande’s Socialist Party was further bolstered following yesterday’s parliamentary election in France. The party and its allies won an absolute majority in the National Assembly, exit polls showed, paving the way for them to pass legislation without the aid of other members of parliament.

In Germany, Merkel’s Christian Democratic Union had its worst-ever result in an election last month in the country’s most populous state.

Greek Debt

Of Greece’s 266 billion euros of debt, about 194 billion euros, or 73 percent, is held by the European Central Bank, euro-area governments and the IMF, according to the Greek debt management office in Athens. In 2010, before the first bailout, Greece owed about 310 billion euros, all to the private sector.

Greece completed the largest bond restructuring in history in March, as holders forgave more than 100 billion euros on their government securities.

Since then, Greek bonds issued under the terms of the deal have slumped. The 2 percent note due February 2023 was at 16.42 percent of face value on June 15, down from 28.68 percent on March 15. The bonds yielded 27.13 percent last week.

German two-year yields turned negative for the first time on June 1, meaning investors were paying for the safety of holding the region’s safest assets, while 10-year rates touched an all-time low of 1.127 percent the same day.

“If these polls prove to be accurate and New Democracy can form a coalition, then there is some scope for a relief rally,” said Simon Smith, chief economist at foreign-exchange broker FXPro Group Ltd. in London. “There’s so much uncertainty about whether a viable coalition will be formed that the market will still be skeptical. It’s still a long road for Greece. We are bearish euro.”

To contact the reporters on this story: Keith Jenkins in London at kjenkins3@bloomberg.net; Emma Charlton in London at echarlton1@bloomberg.net

To contact the editors responsible for this story: Daniel Tilles at dtilles@bloomberg.net; Rocky Swift at rswift5@bloomberg.net

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Greece Races as Cash Dwindles With Europe Seeking Return to Cuts

By Jonathan Stearns - Jun 18, 2012 4:19 AM GMT+0700

Greece’s two traditional political rivals are in a race to forge an unprecedented coalition as the state’s cash dwindles, bank deposits flee and Europe demands renewed austerity pledges before releasing more emergency aid.

Greece will run out of money in mid-July, the Syriza party, which placed second in yesterday’s election, said on June 13 after being briefed by Acting Finance Minister Giorgios Zanias. Caretaker Labor and Social Security Minister Antonis Roupakiotis refused to offer assurances pensions will be paid in August, Athens News Agency reported the same day.

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With the 17-nation currency’s future on the line, finance ministers pledged to assist Greece in its struggle with the cycle of austerity and recession that has trapped the country since it became the first victim of the debt crisis in 2010. Photographer: Chris Ratcliffe/Bloomberg

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June 17 (Bloomberg) -- Greece avoided political and financial chaos as voters gave a narrow victory to pro-bailout parties in Sunday's election. But it won't be easy for first-place finisher New Democracy to form a coalition government. Bloomberg TV Economics Editor Michael McKee reports from Athens. (Source: Bloomberg)

“There’s no time to lose or leeway for small party games,” Antonis Samaras, leader of New Democracy, said in Athens yesterday after placing first in a rerun vote that will force him to rule with the third-place socialist Pasok party. “The country must be governed.”

Two months of political limbo threaten to cut off the quarterly disbursement of euro-area and International Monetary Fund loans that have kept the country afloat since 2010. Greece, in its fifth year of recession, would face having to abandon the 17-nation euro and reintroduce the drachma were the flow of rescue funds to stop.

Political leaders in Europe insist Greece enact spending cuts promised in return for 240 billion euros ($305 billion) in rescue packages since 2010 while holding out the possibility of granting extra time to meet targets for narrowing the budget deficit.

‘Stand by Greece’

“We will continue to stand by Greece,” European Union President Herman Van Rompuy said in a statement following the vote.

After an inconclusive May 6 election that led to the June 17 rerun, European and IMF budget experts canceled a mission to review Greece’s eligibility for the next aid installment and now intend to carry out the assessment around the end of June. That plan assumes a new Greek government is in place by then.

“There’s not even a day to lose,” said Evangelos Venizelos, leader of Pasok.

New Democracy won 130 seats in the 300-seat parliament, according to Interior Ministry projections with almost 90 percent of the vote counted. Pasok, which has alternated in power with New Democracy over the past four decades, won 33 seats, enough to forge a coalition that backs the creditors’ austerity demands.

Syriza Demands

Syriza matched its second-place ranking of last month by stepping up demands to abandon the fiscal-tightening program.

Alexis Tsipras, the head of eight-year-old Syriza, had vowed to keep Greece in the euro while winning concessions on the rescue terms from European leaders including German Chancellor Angela Merkel. He said New Democracy and Pasok, which united last year to back further fiscal tightening by a caretaker government, had “lowered the Greek flag and surrendered it to Angela Merkel.”

Tsipras signaled yesterday that Syriza won’t join a government with New Democracy and Pasok, saying his faction “will be present in all developments as the main voice of the anti-bailout vote in Greece.”

Euro-area finance ministers said Greece’s economic recovery requires “continued fiscal and structural reforms.” In a statement yesterday, the European ministers urged the “swift formation of a new Greek government that will take ownership of the adjustment program.”

Pursue Cuts

Greece must pursue budget cuts with “determination” to win the release of further aid, the European Commission said on May 30. The country faces a cumulative fiscal gap in 2013-2014 of 5.5 percent of gross domestic product, according to the commission, the 27-nation EU’s executive arm.

A lack of progress in bolstering tax collection, improving public procurement and selling state-owned assets has left Greece struggling to meet targets for narrowing a budget deficit that in 2009 was more than five times the EU limit.

European and IMF demands for an economic overhaul underpin an initial 110 billion-euro rescue in May 2010 and a second 130 billion-euro loan package that, along with the world’s biggest writedown of privately held debt, followed this year. The latest package is due to last through 2014.

The Greek budget-policy shortcomings have increased skepticism in euro nations such as Germany, the Netherlands and Finland about offering aid, while the worst recession in Greece during peacetime has made domestic voters critical of the fiscal-austerity demands. Syriza’s electoral success last month sparked concerns across Europe about a possible Greek exit from the euro area.

Deposit Outflows

Greek deposit outflows accelerated before the June 17 election, two bankers familiar with the situation said, on concern the nation may move closer to abandoning the euro. Daily withdrawals had increased to as much as 500 million euros this month, one banker said, asking not to be identified because the figures aren’t public.

Greece narrowed its deficit from more than 15 percent of GDP in 2009 to 9.1 percent in 2011. The country’s spending gap is due to fall to around 7 percent of GDP this year.

With Greece’s financial troubles still festering more than two years after sparking Europe’s debt crisis, Italy at risk of joining the Greek, Irish, Portuguese and Spanish governments in seeking emergency aid and European leaders split over deeper fiscal integration, the onus to calm any renewed volatility on financial markets may fall on central banks.

Central banks “are the only actors who can react swiftly,” Joachim Fels, chief economist at Morgan Stanley (MS) in London, said in a June 17 report.

To contact the reporter on this story: Jonathan Stearns in Athens at jstearns2@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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Greek Pro-Bailout Parties Take Majority, Projection Shows

By Maria Petrakis and Natalie Weeks - Jun 18, 2012 3:28 AM GMT+0700

Greece’s largest pro-bailout parties, New Democracy and Pasok, won enough seats to forge a parliamentary majority, official projections showed, easing concern the country was headed toward an imminent exit from the euro. The currency rose on the result.

The election would give New Democracy and Pasok 163 seats if they agree to govern together in the 300-member parliament, according to the official projection by the Interior Ministry in Athens based on 63 percent of today’s vote.

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Alexis Tsipras, leader of Greece's Syriza party, arrives to cast his vote in the second round of the Greek general elections, in Athens. Tsipras told supporters to “turn your backs on the two parties of bankruptcy,” urging them to reject the two main parties. Photographer: Chris Ratcliffe/Bloomberg

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Greeks head to the ballot box in two days for a contest that may determine the fate of the world's first democracy and the future of the newest reserve currency, while roiling markets from Wellington to Wall Street. Photographer: Chris Ratcliffe/Bloomberg

“For markets, a majority for an ND-Pasok coalition would be a relief,” Holger Schmieding, London-based chief economist at Berenberg Bank, said in a note today. “It would very much reduce the risk of a Greek euro exit.”

The vote forced Greeks, in a fifth year of recession, to choose open-ended austerity to stay in the euro or reject the terms of a bailout and risk the turmoil of exiting the 17-nation currency. The election threatened to dominate a summit of world leaders that starts tomorrow in Mexico.

Antonis Samaras’s New Democracy had 30.1 percent, or 130 seats, and Socialist Pasok took 12.6 percent for 33 seats, the projection showed. Alexis Tsipras’s Syriza, which advocated reneging on the terms of the bailout, won 26.5 percent, or 71 seats. Samaras called for a government of national salvation.

“The Greek people expressed their will to stay anchored with the euro, remain an integral part of the euro zone and honor the country’s commitments,” Samaras told supporters. “There’s no time to lose.”

Pressure on Venizelos

While Pasok leader Evangelos Venizelos demanded that Syriza join a unity coalition, the former finance minister said a government must be formed right away to avoid further economic deterioration and safeguard Greece’s place in the euro. That will make it harder for him to hold off demands to team up with Samaras in a coalition that excludes Tsipras.

Pasok “will not be able to resist such a pressure,” Wolfango Piccoli, a political risk analyst at Eurasia Group in London, said in an e-mail.

While 21 parties were on the ballot, the main contest was between Tsipras and Samaras, who said his challenger’s policy risked an exit from the currency union.

Tsipras signaled Syriza won’t join the national salvation government planned by New Democracy.

Syriza “will be present in all developments as the main voice of the anti-bailout vote in Greece,” he said in statements carried live on state-run NET TV today. Austerity measures underpinning the international rescues extended to Greece have no popular support, he said.

Euro Concerns

The election marked a revote after an inconclusive May 6 ballot that stoked increasing speculation that Greece’s dwindling cash reserves and accelerating deposit flight would force it out of the 17-nation currency union.

Now in its third year, the European debt crisis has rounded back to Greece, which sparked the turmoil in October 2009 when Pasok Prime Minister George Papandreou revealed a deficit four times more than European rules allowed. Greece has since gotten two rescue packages totaling 240 billion euros ($303 billion) from the European Union and International Monetary Fund.

In exchange for the aid, Greece promised state asset sales, pension cuts and wage reductions. Tsipras pledged to abandon those measures. Samaras had said that made the vote a referendum on quitting the euro. Tsipras, who said he’d try to keep Greece in the euro while tearing up the bailout agreements, urged voters to reject the two main parties that backed the international rescue, New Democracy and Pasok.

German Signal

Meantime, Germany signaled a willingness to loosen some of the pressure on Greece. “I can imagine we could do something in terms of the timeframe, because the standstill that has taken place over the past few weeks has done damage,” Foreign Minister Guido Westerwelle told broadcaster ZDF in Berlin today. “But one thing must be clear: the treaties must be valid in substance. They can’t be canceled or renegotiated.”

Before the vote, central banks intensified warnings that Europe’s failure to tame its debt crisis threatens to roil the world’s financial markets and economy as Greece’s election looms as the next flashpoint for investors.

The Greek turmoil has cast a pall around the world, with Bank of England Governor Mervyn King calling the euro debt crisis a “black cloud” over the global economy.

Following the vote, the currency gained 0.6 percent to $1.2709 at 11:20 p.m. in Athens.

To contact the reporters on this story: Maria Petrakis in Athens at mpetrakis@bloomberg.net; Natalie Weeks in Athens at nweeks2@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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