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The first results of the Greek elections are in. It is a landslide victory for the anti-austerity SYRIZA led by Alexis Tsipras, with the party almost winning an outright majority. The party has promised a renegotiation of Greece’s debt and an end to austerity. Open Europe breaks down what happens next and what all of this means for Greece, the Eurozone and the EU.
25 January 2015
In an even larger than expected victory, SYRIZA has almost secured an absolute majority in the new Greek parliament. The latest projections credit the anti-austerity party led by Alexis Tsipras with 149 seats, only two seats short of an outright majority. SYRIZA holds nearly twice as many seats as New Democracy, the centre-right party of outgoing Prime Minister Antonis Samaras (the data have been updated from the first projection which put SYRIZA on 150 seats).
There are two likely coalition scenarios (neither looks perfect). SYRIZA may still get an outright majority, but it would be a wafer-thin one. With tough Eurozone negotiations ahead and the potential for MPs to rebel, SYRIZA may well look for a coalition, not least because it will have a very strong hand to play.
SYRIZA and the Independent Greeks (ANEL)
SYRIZA and To Potami
Other coalition set-ups look unlikely
SYRIZA has spelled out its economic plans in the so-called ‘Thessaloniki programme’. The main proposals include:
SYRIZA will have to move quickly in negotiations with its European partners. The current bailout extension is due to expire at the end of February. If no programme is in place, this could see Greek banks lose access to ECB funding as Greek bonds will no longer be eligible as collateral. With uncertainty over the bailout programme, the ECB could also choose to apply pressure by threatening to cut off access to the Emergency Liquidity Assistance (ELA), as it did with Cyprus in 2013.
Greece also has significant bond repayments in July and August, totalling over €7bn. With cash reserves already at a record low of €2bn and reports of numerous taxes going unpaid since the Presidential election was called in December, the new government will be short on cash. SYRIZA’s answer is to issue more T-bills (short term government debt) but this would require approval from the EU/IMF/ECB Troika. If they went ahead anyway, the only buyers would be Greek banks, however, they require liquidity from the ECB to make such purchases.
As we noted in our recent two-part blog ‘Revisiting Grexit’, the balance of power has shifted somewhat. The Eurozone is rightly less concerned by financial contagion from a Greek euro exit. Equally, the Greek economic situation has improved to the stage where it may be able to manage the economic and financial fallout for a Grexit. That said, it would still undoubtedly be more painful for Greece than the Eurozone. Furthermore, the large majority of Greeks still want to stay in the euro at all cost – 76% in polls earlier this month. This means Greece is unlikely to unilaterally leave the euro. However, the thin ground for compromise means that the negotiations will be particularly tricky and that a Grexit, while unlikely, cannot be ruled out at this stage.
Whatever happens, Greece has once again become the Eurozone’s testing ground. Anti-establishment parties across the bloc, such as Podemos in Spain and Front National in France will be watching the negotiations closely. Allowing Greece a compromise could well spur them on and signal a huge shift in the bloc’s approach to the crisis. Equally, refusing to compromise could undermine their proclamations of change. That said, it could also further fuel the popular backlash against EU-mandated austerity.
Whatever the outcome of the negotiations, there is a sense that this time is different. There is a stark divergence between two entrenched positions. The implications will be felt across Europe. While a compromise could still be possible, it will be quite painful to reach and will imply someone taking big steps back from their previous stance.