The people of Greece have spoken. They are officially tired of the bankers and its pro-banker government’s austerity programs which robbed them of their dignity to live as humans.
This is another blow to the euro currency and the EU bloc itself.
QUESTION: What happened and why will it matter for markets?:
ANSWER: The early parliamentary elections have given Syriza a significant and historic victory that surpasses the market consensus.
This is the first time Syriza is in a position to form and lead a government. Its popularity reflects intensifying economic and social frustrations among Greek citizens, including the perception that their long sacrifice hasn’t yielded any meaningful gains, let alone any hint of an end to what they see as years of austerity and deprivation.
An alternative economic approach was the core of Syriza’s electoral campaign. Its program, which rejects austerity and seeks debt reduction, was pursued with vigor by the party’s leader, Alexis Tspiras, who frequently took swipes at Germany, including personal attacks on Chancellor Angela Merkel. He argued that the most influential power in the euro zone was too austerity-obsessed in its approach to Greece.
Greece’s Fiscal Odyssey
This has led to concerns that Greece could exit the euro zone. A so-called Grexit would entail the return of a national currency to replace the euro, losing access to European Central Bank financing windows and, most probably, less financial support from the European Union and the International Monetary Fund. It would also raise doubts about some other countries in the region, leading to a repricing of individual and collective risk factors.
An exit from the euro would require the Greek government to counter the immediate threat of significant disruptions, come up with a new medium-term economic vision, strengthen its domestic institutions and pursue a different relationship with European partners that would preserve the country’s access to free trade and certain financing arrangements.
Grexit concerns have been amplified by indications that, particularly compared with 2010-2012, Germany appears less concerned about the negative spillovers for the euro zone — and for good reason, given the (albeit still incomplete) efforts to strengthen the region’s institutional structures. For example, regional financing mechanisms have been strengthened, banks have been subjected to more rigorous stress testing and a significant portion of national debt has been refinanced with longer maturities and lower interest rates.
Q: How are markets likely to react when trading resumes Monday?
A: If the larger-than-expected Syriza win is confirmed, and especially if it results in an absolute majority, expect a sell-off in European risk assets, including equities. High-quality bonds would be supported by flight-to-quality flows, resulting in lower yields (particularly on German bonds). And look for prices to fall and risk spreads to widen on bonds issued by European peripheral nations such as Italy, Portugal and Spain.
On the currency front, the euro will probably come under pressure, too, exacerbating the recent weakening to levels not seen in 11 years.
Greek markets are likely to be subjected to the greatest pressures, including a notable widening in risk spreads on sovereign and bank bonds. The question is whether this also translates into a significant pick-up in withdrawals by residents of bank deposits as well as capital flight. If it does, Greek politicians would need to quickly take major steps to counter the threat of cascading market dislocations.
Q: Is a Grexit inevitable?
A: No. To reduce the risk, Tsipras would need to embark quickly on a “Lula pivot.” That is, he will need to assure markets that the relaxation of austerity would be accompanied by a big push on structural reforms, that the alleviation of the debt burden would be pursued in an orderly and negotiated manner, and that he is willing to engage in constructive discussions with Germany and other European partners.
Q: Are there broader implications?
A: Yes. The outcome of the Greek elections is indicative of a broader political phenomenon in Europe that involves the growth of non-traditional parties. Fueled by concerns about disappointing growth, unemployment and social issues, it is powered by large-scale dissatisfaction with the established political order. And it isn’t limited to the peripheral economies.
To contact the author on this story:
Mohamed El-Erian at [email protected]
To contact the editor on this story:
Max Berley at [email protected]
Greece’s anti-austerity Syriza party officially wins parliamentary elections
Edited time: January 26, 2015 04:33
READ MORE: EU’s bailout program for Greece ‘dead’ – Syriza economist
The votes have so far been counted at 96.6 percent of polling stations across the country.
Greek Prime Minister, Antonis Samaras, has acknowledged defeat and congratulated Syriza’s leader, Alexis Tsipras, on the phone regarding his victory in the election, Reuters reports.
“Greece leaves behind catastrophic austerity, it leaves behind fear and authoritarianism, it leaves behind five years of humiliation and suffering,” Tsipras told thousands of cheering supporters at a rally in Athens.
— RT (@RT_com) January 25, 2015
“The Greek people have spoken and we all respect their decision. I have a clear conscience,” Samaras said in a televised statement. “New Democracy will remain ready to play a decisive role in future developments, as the guarantors of the country’s European course.”
— Ruptly Stringer (@RuptlyStringer) January 25, 2015
Meanwhile, the leader of the country’s right-wing Independent Greek party, Panos Kammenos, has confirmed he is willing to form a coalition with Syriza. Kammenos said he has called Tsipras to congratulate him and to offer his party’s support for Syriza’s anti-bailout policy. Independent Greek is set to gather just under 5 percent of the vote.
— The Economist (@TheEconomist) January 26, 2015
The exit-polls earlier revealed that Syriza, has won between 35.5 and 39.5 percent of the vote in the national parliamentary election, leaving the New Democracy party more than 10 per cent behind.
The New Democracy party, led by Greek Prime Minister, Antonis Samaras, has received between 23 and 27 percent of the vote.
— Alex Andreou (@sturdyAlex) January 25, 2015
The results of the exit polls were announced right after polling stations across the country closed at 1700 GMT.
Syriza supporters go wild as exit polls indicate VICTORY.
— Ruptly (@Ruptly) January 25, 2015
The first official results have been announced at approximately 1920 GMT, with the outcome of the vote to be finalized on Monday morning.
Centrist party To Potami (The River) and the far-right Golden Dawn party are in tight competition for third place, with both attaining 6.4 to 8 percent of the vote, according to a joint poll by Metron Analysis, GPO, Alco, MRB, Marc.
— Maria Finoshina (@MFinoshina_RT) January 25, 2015
Syriza (Coalition of the Radical Left), which is headed by 40-year-old Alexis Tsipras, rose to popularity after it promised to renegotiate Greek debt and put an end to austerity in the country.
In Greece, a political party requires between 36 and 40 percent of the vote in order to secure an outright win, with the exact figure depending on the share of the vote taken by parties that failed to pass the 3 percent threshold required to enter parliament.
According to the exit polls, seven parties are on the way to making it into the new Hellenic Parliament, which is comprised of 300 MPs.
— #GeneralStrike (@OccupyWallStNYC) January 25, 2015
The election was held earlier than scheduled because of the failure of the parliament to elect a new Greek president on December 29 last year.
The presidential candidate presented by the government, Stavros Dimas, had failed to secure the required majority votes from MPs across three rounds of voting.
This means that Syriza will occupy between146 and158 seats in the Greek parliament, while New Democracy will likely have to settle for between 65 and 75 seats.
OP-ED: Greece elections: Merkel has lost, hope has won
One hundred and fifty one seats are required for a party to form a government on its own.
“It is a historic victory, we still have to see if it will be a big historic victory. It sends a message against austerity and in favor of dignity and democracy,” Panos Skourletis, Syriza spokesman, told Greek Mega TV.
A senior New Democracy party member, health minister Makis Voridis, has conceded defeat to Syriza in the elections.
“We lost. The extent of that result is not yet clear,” Voridis told Mega TV.
If the results of the exit polls are officially confirmed, Syriza will become the first ruling anti-austerity party in Europe.
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