The resounding victory of the Greek left-wing party, Syriza, in Sunday’s elections will undoubtedly have sent a strong message to the country’s European partners. The Greek electorate held firm in their desire for change, with the final margin of victory much larger than that predicted in opinion polls preceding the vote.
Conjecture over recent weeks has focussed upon what might happen to Greece-and indeed the euro zone- in the event of a Syriza victory. Various news reports emanating from Germany stated that politicians in Europe’s largest economy were readying themselves for a Greek exit.
From an EU perspective, Mario Draghi has been performing an unenviable balancing act; at once trying to launch a QE programme aimed at stimulating the euro zone economy, while at the same time attempting to deal with the consequences for the monetary union should Syriza win out. Aligned to an increasingly tough stance from Northern European countries towards Greece, Europe has again found itself in a state of flux in the run-up to the Greek vote.
Yet now that Syriza has won, how are things likely to play out?
Alexis Tsipras party have been almost universally depicted as “radical” in global media reporting over the past two years. However, it has become clear in recent weeks that Mr Tsipras is increasingly viewed as someone with whom the troika can do business.
Mr Tsipras’ popularity has stemmed from a willingness to confront his European counterparts on the austerity issue, yet there is a growing sense that agreement surrounding the restructuring of the country’s debt will be achieved through negotiation with the EC, IMF and the ECB.
Greece will need to seek further assistance from the troika at the end of February. Syriza’s ascent, and its campaign platform to end austerity means some intensive horse-trading is inevitable over the coming weeks. With the country’s debt currently standing at 175% of GDP, Greece’s creditors have been loath to accept any prospect of a deviation from the bailout programme negotiated with the previous Greek government.
Mario Draghi’s decision last week to exclude Greece from this round of ECB sovereign bond purchasing will serve to strengthen the negotiating position of the troika. Greece is scheduled to run out of funding in June, and thus will be dependent on the ECB for further assistance. Draghi’s decision has effectively put Tsipras in a position where he has little option but to negotiate.
Yet the doomsday spectre of a Greek exit from the euro zone seems to have subsided, not least on bond markets, where 10-year sovereign yields were down across peripheral states last week, despite the increasing prospect of a Syriza victory. Greek bonds fell to 8.72%, having been priced at 9.59% back in December. Such sentiment would appear to show that fears of a Grexit have subsided, at least for now.
Last week’s summit at Davos saw the Finnish Prime Minister, Alexander Stubb, offer something of an olive branch to Greece, noting that Finland would be open to a possible restructuring of Greek debt repayments, with Irish Premier Enda Kenny also in agreement. Even the hitherto intransigent German Chancellor, Angela Merkel, noted that she wished “for Greece to remain part of our story”. Although subtle, the semantics involved surely underline a growing acceptance in Europe’s corridors of power that a Syriza victory would have to be managed carefully.
While Mr Tsipras’ election rhetoric has focussed on “ending austerity”, his ability to deliver promises on public investment will depend largely on the deal on offer from the troika. The resounding victory secured this weekend will certainly have strengthened his hand, but Mr Tsipras appears a smart enough campaigner to know that he will most likely have to compromise on some of his election pledges sooner rather than later. Last week, Tsipras noted- in an interview with the Financial Times- that he “was a compromiser”. One suspects he may have to be. However, it looks increasingly probable that Greece’s creditors will have to do likewise.