Greece faces snap elections next month that risk severing theinternational lifeline that has supported the country since itsparked Europe's sovereign debt crisis in 2010.

Prime Minister Antonis Samaras said in a live broadcast inAthens today that he will recommend parliamentary elections areheld on Jan. 25, almost 18 months before his coalition's term wasdue to end. Samaras spoke after he failed in his third attempt topersuade lawmakers to back his candidate for head of state, forcingthe legislature's dissolution.

“The government did everything possible to get a new presidentelected and a minority of MPs now drags the country to earlyelections,” Samaras said in remarks broadcast on state-run NeritTV. “I will do everything to guarantee that the country stays onthe path of reforms.”

Stocks and bonds plunged in Athens after the governmentdefeat, recalling the height of the Greek financial crisis in 2012,with investors concerned a victory by the opposition Syriza partywould jeopardize the terms of Greece's rescue struck withinternational creditors. Syriza, which opposes austerity measuresimposed in return for the outside aid, leads Samaras's NewDemocracy movement in opinion polls.

“These elections will be a struggle between fear for euro exitand anger against austerity,” George Pagoulatos, professor ofEuropean politics and economy at the Athens University of Economicsand Business, said by phone. “The government will be emphasizingthe risks associated with Syriza's anti-bailout stance, and Syrizawill try to convince voters that it can offer a viable alternative,without endangering the country's euro membership.”

The trigger for the elections was the failure at the third andfinal attempt of Samaras's bid to push through his nominee forpresident, Stavros Dimas. Dimas attracted the support of 168lawmakers in the 300-seat chamber, short of the 180 votes required.Under the constitution, the legislature must now be dissolved and adate for elections set. Samaras said he'll meet tomorrow with theincumbent president, Karolos Papoulias, and ask for the election tobe held on Jan. 25. That's just weeks before Greece's 240billion-euro (US$293 billion) bailout expires.

The International Monetary Fund, one pillar of the so-calledtroika of international creditors that includes the EuropeanCommission and the European Central Bank (ECB), said in an emailedstatement that Greece faces “no immediate financing needs.”

Yields Jump

The yield on the 10-year Greek bond jumped after the result ofthe vote was announced in parliament, and was up 132 basis pointsto 9.8 percent as of 5:12 p.m. in Athens. The benchmark AthensStock Exchange dropped 4 percent after falling more than 11 percentearlier in the day, the biggest slump among 18 Western Europeanmarkets.

The impact on other euro-area nations scarred by the debt crisiswas more subdued. Ten-year Portuguese yields rose 4 basis points,to 2.73 percent, while equivalent Spanish debt edged up 1 basispoint to 1.68 percent. Italian 10-year yields gained 6 basis pointsto 2 percent.

“I feel I can exclude completely a contagion effect betweenItaly and Greece,” Italian Prime Minister Matteo Renzi said at anews conference in Rome today.

Samaras, who failed to gather enough support for Dimas in twoprevious rounds of voting, on Dec. 17 and Dec. 23, called onlawmakers before today's session to avert snap elections that hesaid posed a danger to the country. Heading a coalition of 155lawmakers, he'd offered to form a broader administration and holdearly parliamentary elections at the end of 2015 if lawmakersbacked his nominee.

Syriza leader Alexis Tsipras, hailing a “historic day” fordemocracy, told reporters that the Greek people were determined toput an end to austerity, and that in a few days the bailoutmemorandum and its policies would be confined to the past.

Syriza pledges to annul the bailout agreement and vows torenegotiate repayment terms on loans from euro member states and onGreek bonds held by the ECB. It does not advocate an exit from theeuro area.

“Syriza's program includes blackmailing the European Union bynot paying the debt Greece owes to European countries,” NicholasEconomides, an economics professor at New York University's SternBusiness School, said in an email. “It also includes significantincreases in salaries, pensions, and the number of civil servants.None of these actions are feasible with Greece in theEurozone.”

Recovery Signs

The election comes as Greece's economy shows signs of recovery,exiting in the second quarter a six-year recession that cost thecountry about a quarter of its gross domestic product and tripledthe unemployment rate.

The ECB referred in a statement to the “impressive progress”made by Greece in recent years in stabilizing public finances andreforming its economy.

“It's now for the Greek electorate to decide about the futurecomposition of the parliament and the government,” the central banksaid in an emailed statement. “We will not interfere in or commenton this democratic process.''

Pierre Moscovici, EU commissioner for economic and financialaffairs, was more explicit.

“A strong commitment to Europe and broad support among the Greekvoters and political leaders for the necessary growth-friendlyreform process will be essential for Greece to thrive again withinthe euro area,” he said.

–With assistance from Nikos Chrysoloras, Marcus Bensasson andAntonis Galanopoulos in Athens and Alister Bull in Washington.

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