Over the past few months we’ve written extensively about the financial and political situation in Greece and the possible implications for the country – and for Europe – if Syriza won the General Election that was held on January 25th. We now know the result of the Election: Greece has a new government and it appears that we’re about to have a period of considerable uncertainty.
We therefore thought it might be useful to answer the key questions our clients might have, in order to put the Greek result into a wider context and see what might lie ahead.
What was the result of the Greek election?
The far left coalition, Syriza, was the biggest party, winning 36.3% of the popular vote and 149 seats in parliament. This left Syriza two short of an overall majority, and they therefore formed a coalition with ANEL (Independent Greeks) who won 13 seats with 4.75% of the vote. Interestingly ANEL is a far-right party, but both partiers shame the same determination to end the austerity imposed on Greece by the ‘Troika’ (the European Union, European Central Bank and International Monetary Fund).
So who are Syriza?
Syriza are a coalition of left wing parties – in full it’s the Coalition of the Radical Left – including some very left wing parties indeed. In the previous election they won 71 seats, but the increasing popularity of their charismatic leader Alexis Tsipras and his call to end austerity and ‘restore the dignity’ of the ordinary Greek voter struck a real chord. In truth, the result was never in doubt from the time the General Election was called.
Who’s Alexis Tsipras and where has he come from?
Alexis Tsipras is 40. He’s a graduate of the National Technical University of Athens, where he studied engineering. He’s married with two children and his second son is named after Che Guevara. Famously he never wears a tie, saying, “I’ll put a tie on when Greece gets a haircut (a debt reduction).”
There’s no doubt that he’s charismatic, and he’s recently sought to soften some of his very-far left pronouncements, having meetings with the Pope, the President of the European Central Bank and German Finance Minister Wolfgang Schaeuble – someone whose obsession with fiscal discipline he’d previously attacked.
What is the new Greek government planning to do about Greek debt?
It may be that in the weeks and months ahead the new Greek Finance Minister – Yannis Varoufakis, a former student at Essex University, economics blogger and a man who famously honed his theories at a video games company – will become at least as central a figure as Tsipras. Varoufakis has already said that Greece cannot be expected to repay all its debt, and that what it does repay should be linked to growth in the economy.
Clearly Syriza need to ‘talk tough’ immediately after their election win – equally they state that they (currently) have no wish to leave the euro, hinting that there’s a deal to be done. We shall see…
What does the rest of Europe think to this?
Reaction in Europe to Syriza’s victory and their demands for debt re-negotiation was mixed – very much depending on your political standpoint. In Spain the victory was welcomed by the far left party, Podemos, and their equally tie-less leader Pablo Iglesias. Spain has also suffered under austerity and like Greece, has a frighteningly high level of youth unemployment. With elections due there in late 2015 or early 2016, victory for Podemos – campaigning on a similar platform to Syriza – and an overthrow of the traditional two party system is very much a possibility.
As you might expect, the reaction in Northern Europe has been very different. “An agreement is an agreement” said the German newspaper Bild – and you suspect that several people round Frau Merkel’s cabinet table will share that view. Yet you sense that every effort will be made to keep Greece in the euro and avoid a ‘Grexit.’ Greece leaving the euro would certainly increase the pressure in Italy for a return to the lira. Then again, the concessions to Greece cannot be too great – because then Podemos would presumably expect the same in the event of victory. There are going to be a lot of meetings going on very late into the night before this is settled.
What are the implications for the Euro?
When the Greek election result was confirmed the euro slumped to an 11 year low against the dollar, before recovering slightly. In truth, the result of the election was already factored into currency markets and stock markets – and there are other reasons, such as the threat of deflation and worries about the size of the quantitative easing programme, for the low level of the euro.
So in the short term the euro will limp along as it has done for the last year: its fate in the longer term depends on the negotiations Messrs Tsipras and Varoufakis have with their Northern European colleagues.
Will Greece go back to the drachma?
At the moment it would seem doubtful, despite the fact that the vast majority of Greeks would vote for it. The decision all depends on the debt re-negotiation. If Alexis Tsipras gets his ‘haircut’ then almost certainly not. If not, who knows…
Will the same thing happen in other countries?
As we’ve written above, there is already pressure for a return to the lira in Italy, and the Spanish elections later this year or early next year could well be re-run of the current Greek scenario. Those negotiating with Greece face a difficult balancing act: they may have to give some ground to keep Greece in the euro: they can’t give too much for fear of encouraging moves to exit the euro in Italy and Spain. So the answer to the question is probably ‘no – but watch this space.’
Does this have any implications for the General Election in the UK?
David Cameron has now sent Alexis Tsipras his – clearly very grudging – congratulations. Some members of the opposition have been rather more fulsome. But it’s difficult to believe that the Greek election will have a direct effect on what happens on May 7th. If Greece were to leave the euro it would certainly be after that date. That would clearly encourage those who want the UK to leave the EU, so there may be some long term effects: short term though, it seems doubtful.
Do I need to do anything right now?
At last – a question with a simple answer! No. Rest assured that whatever happens we will keep you informed. This Q&A has been prepared simply for your information: we’ll be keeping our clients up to date on all the news and talking to the fund managers on a regular basis. If we think you need to take action then we’ll let you know – but obviously, if you have any questions or concerns then please don’t hesitate to get in touch with us.
Sources: http://www.theguardian.com/world/2015/jan/26/syriza-forms-government-rightwing-independent-greeks-party How Europe reacted http://www.theguardian.com/world/2015/jan/26/-sp-syriza-election-victory-greece-europe-reacted Prepares for battle with Europe http://www.theguardian.com/world/2015/jan/26/greece-anti-austerity-government-alexis-tsipras New Greek finance minister is a blogger http://www.theguardian.com/business/economics-blog/2015/jan/26/profile-yannis-varoufakis-greece-finance-minister And honed economics at a video games company http://order-order.com/2015/01/27/fate-of-eurozone-rests-in-hands-of-videogame-expert/
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