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Updated Thursday, October 1, 2009 5:26 pm TWN, By ELENA BECATOROS, AP

Greek PM faces tough fight for 3rd mandate

With a budget deficit that could reach 8 percent of economic output this year — well over the European Union ceiling of 3 percent — and a public debt set to surpass 100 percent of GDP, Karamanlis has pledged to slash spending, crack down on tax evasion and freeze salaries, pensions and public sector hiring.

"I know that I am not pleasant at this moment," Karamanlis said during a televised debate last week. "I know, as I am told, (I am) shouldering a political cost, but I know what the national interest is and believe deeply that this land truly has a much better future as long as we make the right decisions now."

He said Greece faces "two difficult years, during which we must reduce public spending, effectively tackle tax evasion and pass structural reforms."

But Papandreou, whose party — founded by his father, Andreas Papandreou — made its worst electoral showing in 30 years in 2007, is taking a drastically different stance.

He insists the only way to boost the Greek economy is through a stimulus package, and has promised up to €3 billion (about $4.4 billion), pledging to increase infrastructure investment and give public sector employees above-inflation pay rises.

"We need to first jump-start the economy for a short period, to give us the breathing-space to make the changes and then move on to a different type of economy within the next few years," he told the AP in an interview.

Karamanlis has dismissed the plan as irresponsible, saying the socialists' promises will cost the country more than €10 billion.

While PASOK was clearly ahead in opinion polls, it is uncertain whether the party will be able to sustain a big enough lead for a clear parliamentary majority. If no party wins enough seats to form a government and cannot agree to form a coalition with a smaller party, a second round will have to be held.

However, a protracted political crisis would further harm the economy, and analysts say there is likely to be little public appetite for a repeat election.

"Chances are that the October 4 election will have a clear-cut majority," Livanios said. "The Greek people cannot afford political uncertainty for the next two months because this will have a tremendously negative impact on the economy."

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