ATHENS (Reuters) - Greece formally dissolved parliament on Wednesday ahead of a general election on Jan. 25 that has cast its international bailout into doubt and set financial markets on edge just as the euro zone grapples with renewed signs of weakness.
The traditional decree calling new elections was posted on the door to parliament two days after lawmakers rejected Prime Minister Antonis Samaras’ candidate for president, automatically triggering a return to the polls.
The Jan. 25 vote will mark a showdown between Samaras’ conservative New Democracy party, which imposed unpopular budget cuts under Greece’s bailout deal, and the leftwing Syriza party of Alexis Tsipras, who wants to cancel austerity measures along with a chunk of Greek debt.
Opinion polls show Syriza holding a lead over New Democracy, although its margin has narrowed to about three percentage points in the run-up to the vote.
However weakness among the small parties that either Syriza or New Democracy would need to form a stable coalition has also added to the uncertainty and raised the possibility that the next government may not survive long.
Tsipras, who says he wants to keep Greece in the euro, has sought to present a more moderate face to financial markets and reassure voters that a Syriza-led government would not raid their bank accounts.
But the potential arrival of a government openly opposed to the international bailout keeping Athens from bankruptcy has fueled a nervy mood on financial markets, even if the impact has been more limited than in past crises.
In a note on Tuesday, ratings agency Fitch said the new elections added to the credit risk surrounding Greece, creating political and policy uncertainty likely to persist for months.
Officials from the European Union and International Monetary Fund bailout “troika” had been due to resume negotiations in Athens next month to agree disbursement of a final 7.2 billion euro tranche as well as a post-bailout credit line.
However the IMF said this week that negotiations would only begin once a new government is in place and noted that Greece had no immediate funding needs.
Even before the election, there were signs Samaras’ ruling coalition had been slipping behind on its reform targets and the prospect of a closely fought election will increase resistance to promised measures including privatizations and job cuts in the public service.
Writing by James Mackenzie; Editing by Dominic Evans