20 September 2015

Greek election results – a clear victory for Syriza [updated]

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As the chart above shows, with all the votes counted Syriza has won a large victory 7.4% ahead of its closest rivals. While it has not won a clear majority the size of this victory should not be underestimated. As I noted ahead of the election, nearly all opinion polls put Syriza and New Democracy neck and neck. Even the exit polls from earlier in the day put only a few percentage points between the two parties. So for Syriza to achieve such a large margin of victory was quite unexpected. Furthermore, we had not really expected to get the initial results until 9pm local time. New Democracy conceded at 8.40pm local time. In the end, the result is remarkably close to the result we saw in January. Despite rising and then falling in the interim, Syriza remains in quite a strong position.

This also highlights that this has been another bad day for the polling firms – there have been plenty of these recently across Europe. The vast majority failed to foresee this result.

It has also been a bad day for Greek democracy in my view. Turnout was at 55%, as the tweet above shows, this compares to 63.6% in the January election and is a record low. Only the 2009 European elections saw a lower voter turnout. Voter apathy is now at its highest levels ever in Greece. Strangely though, those who decided not to vote seem to have come from across the political spectrum. It is not just Syriza or more radical voters who seem to have not voted. Despite lower turnout the result is quite similar to January as noted above.

How might the new Greek government look?

There will still need to be a coalition government. Syriza has once again ruled out a grand coalition with New Democracy, but has said it will seek to form a government within three days. Reports suggest Tsipras will seek to renew the same coalition as in the last parliament.

Syriza 145
Independent Greeks 10
New Democracy 75
Golden Dawn 19
Pasok 17
KKE 14
To Potami 11
Centrist Union 9

New Greek Parliament (September 2015)

Syriza gained 145 seats and will likely form a coalition with the Independent Greeks once again, who have 10 seats.Source: Greek Interior Ministry

A Syriza and Independent Greeks coalition would have a 155 seats in parliament (145 + 10) giving it a slender majority of four. This has always been Tsipras and his party’s preference in terms of coalition, though it didn’t look plausible during the campaign. They have worked together before and would be willing to do so again. However, a slender majority would be far from ideal with a tough reform programme ahead. If he opts for a small majority coalition, he cannot afford any dissenters or defections. Going for this coalition would be a signal of confidence in his party control and management from Tsipras. This may be helped by the fact that Tsipras has undoubtedly seen his hand strengthened with regards to any rebels given that the splinter Popular Unity party failed to make it over the 3% threshold to get into parliament.

There remains an outside chance that Tsipras could seek to supplement this coalition with other parties such as the Centrist Union, Pasok or To Potami but it remains unclear how willing any of them would to serve in a coalition with the Independent Greeks. Furthermore, it’s not clear such a coalition would actually be any more stable or cohesive than the two party one.

What does Greek election result mean for Greek Eurozone policy?

While the election result looks remarkably similar to that from January, the meaning of the vote is actually quite different. The vote for Syriza back in January was for a clear shift in policy, a change from austerity and a renegotiation of the bailout. This time around however it is essentially an endorsement of the status quo. It is a vote in favour of implementing the deal which the previous government agreed with creditors. As such, it’s unlikely we will see much change, even Tsipras’s victory tweet acknowledged: “the road is open before us for work and struggle”.

That said, Tsipras will undoubtedly feel emboldened and stronger than before having purged his party of dissenters and maintained solid support from the electorate. This could have an impact on the upcoming debt relief talks between Greece and its creditors due after the first bailout review (expected to be October or November). Of course, it’s not clear how much of a role the Greek government will have in this negotiation. As I’ve explained before, this will largely be an exercise between the Eurozone and the IMF to ensure there is enough debt relief to get the IMF on board with the third bailout (and contribute to it) but no more than is politically acceptable to the Eurozone states (namely Germany, Netherlands, Finland and the Baltics). A tough line to tread. But while Greece might not have much sway in the direct negotiations, the Greek government will have to endorse or reject the outcome, giving it some leverage. If it were to reject the outcome, things could easily become very complicated very quickly.

The biggest challenge will likely be the level of fiscal consolidation still needed this year. Given the deterioration in the economy, savings equal to 1.5% of GDP needed to be found in the second half of this year as per the bailout agreement. Given the election it is unlikely much of that will have been found, especially once arrears are settled. This leaves the government with around three months to find the required savings. A huge task.

Other big items on the new government’s agenda include: the bank recapitalisation which needs to be completed for capital controls to be fully removed and swift progress in the privatisation of key assets. Neither of these come naturally to Syriza and will involve difficult dealings with creditors. The first review of the bailout could itself be a challenge since nothing has really happened since the prior actions were passed when the bailout was first agreed. Generally, the pressure for bailout progress will be huge.

Of course the on-going migration and refugee crisis requires action. Tsipras will need to carve out a position on this after being vague in the election campaign. However, the fact it is clear he will be Prime Minister may be beneficial for the upcoming emergency EU summit.

What does the Greek election result mean for other populist parties?

This result will mean some reassessment of the populist trends across Europe. Previously, Syriza’s capitulation and difficulties in governing were seen as a blow to other populist parties such as Podemos and in general to those who sought to renegotiate the terms of euro membership. However, its resilience now displays it as a textbook example of a populist party transitioning to a mainstream party of governance. It has shrugged off some of its more extreme elements but retained broad support. Ultimately, its impact will depend on how it governs and interacts with creditors going forward but there is no doubt Podemos and others will be watching closely. On the other hand the utter failure of Popular Unity will leave some scratching their heads. It could be a blow to the more anti-Euro parties and those who seek to push exit from the single currency. If such a line cannot succeed in Greece it might be hard to sell elsewhere. As Duncan Weldon noted on twitter, it might also mean a reassessment of what has been driving some of these parties. While the emphasis has been on the anti-austerity component it might be time to focus on the more anti-establishment and anti-corruption roots of some of these movements.

Overall this has been a big personal victory for Tsipras. Despite a number of u-turns and utterly capitulating on his previous promises and election manifesto he has managed to maintain broad support and realign his party behind him. His exact policy outlook remains confused, caught between promising to implement the bailout but not wanting to really endorse it. Yet he now has a strong platform from which he can decide which way he wants to go. He could utilise it to become a bit more outspoken once again and look to gain more from creditors – a risky play given his position in Europe itself has changed little. Or he could use it to further consolidate his party as the main party of Greek politics. This will be aided by the failure of the opposition parties. In the same breath as this being a good victory for Tsipras given the above, they have failed to take advantage of seemingly favourable circumstances. There is plenty of hard thinking to be done.