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Updated Monday, October 5, 2009 5:04 pm TWN, By ELENA BECATOROS, AP

Socialists trounce conservatives in Greek election

Greek Socialist Party leader George Papandreou, bottom right, is greeted by supporters as he enters his party headquarters in central Athens, on Sunday, Oct. 4, 2009. (AP)

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Socialists trounce conservatives in Greek election

Papandreou now must deal with a faltering economy that is expected to contract in 2009 after years of strong growth, while the budget deficit will probably exceed 6 percent of economic output. Despite his plans for a stimulus package, the new Socialist government will likely have to borrow heavily just to service the ballooning debt — set to exceed 100 percent of GDP this year — and keep paying public sector wages and pensions.

Papandreou has pledged to limit borrowing by reducing government waste and going after tax dodgers.

"Greeks and the electorate do not have any illusions that a magic change will take place tomorrow morning on the economy," said political analyst Anthony Livanios. "They know it's a difficult economic crisis ahead, and they will look for a credible handling and a credible solution" from the new government.

In his first speech after being elected, Papandreou warned Greeks they faced tough times.

"Nothing is going to be easy. It will take a lot of hard work. I will always be upfront with the Greek people so we can solve the country's problems together," he said. "Today, we are setting Greece on a new course ... a course of recovery, progress and creativity. ... I know the potential of the country very well, a potential being drowned by corruption, favoritism, lawlessness and waste."

Greece's budget deficit is well over the European Union ceiling of 3 percent of economic output, and the economy minister recently conceded it could reach 8 percent this year. Some analysts fear it could be as high as 10 percent.

The public debt, already second only to Italy's in the euro zone, is set to surpass 100 percent of GDP while unemployment rose to 8.6 percent in June.

Karamanlis announced the early election just halfway through his second four-year term in an ultimately failed gamble to win a new mandate to tackle Greece's economic woes. But he had already been trailing in opinion polls when he called the election last month, sparking criticism from within his own party.

Karamanlis appeared to have been paving the way for his own departure, said political analyst and publisher of the City Press and Free Sunday newspapers, Giorgos Kyrtsos.

The prime minister appeared to have "a personal exit strategy," Kyrtsos said. "He didn't want to suffer the personal, psychological, political attrition associated with the handling of a crisis ... and he organized his departure."

Karamanlis was re-elected in 2007, but quickly saw his popularity eroded by financial scandals, including a land-swap deal with a Greek Orthodox monastery that cost the state more than €100 million ($145 million) and forced two of his close aides to resign.

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