Barclays | Overall, we believe Sunday’s election result is generally positive. First, although it appears to have failed to win an absolute majority, Syriza received a significant mandate from the population – more so than indicated in any of the recent polls – despite its recent policy U-turn. Therefore, in our view, it has a clear mandate to implement the third bailout. Second, in public speeches following the election results, Alexis Tsipras (Syriza) and Panos Kammenos (Independent Greeks) said that they will continue their collaboration in the new government. This is likely to be a more stable coalition than the potential three-party alliance that the latest polls had signalled. Finally, with its dissident leftist segment having formed a separate party that failed to enter parliament, Mr Tsipras should have a more stable political formation.
However, despite this clear victory and positive status quo, a number of key questions remain for the post-election era:
- Although the Independent Greeks party has consistently supported third bailout and prior actions, and given that Syriza has gained stability with its dissidents leaving, we nonetheless note that the likely government coalition is likely to have just a 4-seat buffer for an absolute majority. While this does not constitute an immediate worry in our view, it could prove to be a challenging point during the three-year ESM programme implementation.
- Will the quarterly targets be met as the macroeconomic outlook worsens? We think the risk of missing the programme targets remains elevated.
- Full recapitalisation of the banking sector before the end of the year is an ambitious target, but a necessary condition to lift capital controls. The recapitalisation needs are expected to be unveiled within the next one to two months.
- Will the European partners deliver meaningful public debt relief in the coming months? This will be contingent to a large extent on a successful first programme review (start mid-October/early November) and favourable prospects of programme implementation. The risk of a delay in negotiations and delivery of OSI is non-negligible. If delivered, it is likely to take the form of NPV debt relief without principal haircuts.
- Will the ECB reintroduce the waiver on GGBs and include them in the PSPP programme? This would be conditional on good programme execution by the government and the OSI improving solvency.
- Will the IMF commit financial resources under the third EUR86bn bailout programme? Similar to the ECB’s decision, a precondition for IMF involvement will be delivery of further OSI by Europe and the programme being in good standing.