Game on in Greece

January 26, 2015

The head of radical leftist Syriza party Tsipras waves to supporters after winning the elections in Athens

Syriza has fallen tantalisingly short of an overall majority, winning 149 of 300 Greek parliamentary seats and taking 36.3 percent of the vote, 8.5 points ahead of the New Democracy party of Prime Minister Antonis Samaras in what amounts to a decisive rejection of austerity.

The euro dropped to an 11-year low of $1.1098 in response and European shares are expected to fall.

Left-wing leader Alexis Tsipras has tempered some of his demands in recent months. He wants to stay in the euro but is still intent on calling time on austerity and renegotiating Greece’s debt pile with its euro zone peers.

European Central Bank policymaker Benoit Coeure is already out saying there will be no debt relief from the ECB.

Having to seek a coalition partner may give Tsipras more cover to negotiate pragmatically with European leaders. If he had won an overall majority, the hardliners within his party may have pushed him into a more extreme position.

As the recently deceased former New York Governor Mario Cuomo put it: you campaign in poetry, govern in prose.

However, that depends on which party Tsipras chooses to hook up with. Both newcomer To Potami and PASOK, part of the outgoing coalition, have the numbers to form a fairly durable combination. But it appears he wants to go with the Independent Greeks who firmly oppose the EU/IMF bailout programme, suggesting a more uncompromising stance from Athens.

They would be interesting bedfellows since aside from rejecting the bailout they are right-wing and have little common policy ground with Syriza.

Tsipras said he would cooperate with fellow euro zone leaders for “a fair and mutually beneficial solution” but said the Greek people came first. He will be sworn in later today and then begin coalition talks.

Could this result tip the growth vs austerity debate in the euro zone? Certainly other opposition parties have been watching closely.

With the ECB poised to buy more than a trillion euros of government bonds this year and next, with a euro zone bailout fund and banking union in place and given most of Greece’s debt is held by EU institutions and governments, there are good reasons to think it no longer has the power to bring the currency bloc to its knees.
But no one really wants to take that chance.

Euro zone finance ministers meet today and will discuss another extension of the bailout for Greece, of up to 6 months, to give the country a chance to form a government and complete talks with international lenders on reform progress while keeping the door open to a final disbursement under the old bailout.

Tsipras has dismissed the idea that Athens has to complete a review of its bailout by the end of next month when the programme expires, saying any government led by his Syriza party would have until July to negotiate with the EU and IMF.

Shut out of the markets once more, Greece has enough cash to meet its funding needs for the next couple of months but faces around 10 billion euros of debt repayments over the summer.

The ECB upped the ante, making clear that Greece would not be eligible for its QE programme until the EU/IMF troika had signed off on its last review.

Even then, no bonds will be bought until the summer because the ECB already holds a bucket-load of Greek debt and it would only happen then if the country remained in a bailout programme. Tsipras is not going to have much of a honeymoon period.

After flash PMI surveys for January showed the euro zone economy began 2015 in better shape than expected, although firms were forced to slash prices, and Germany’s private sector expanded faster, the Ifo index of German sentiment will be closely watched this morning.

Pro-Russian rebels, with what NATO says is overt Russian backing, launched new attacks against Ukrainian government positions on Sunday and Western countries threatened more sanctions against Moscow for backing a new separatist offensive.

The European Union will summon foreign ministers of its 28 member states for an emergency meeting on Thursday and Barack Obama said Washington was considering all options short of military action to isolate Russia.

Nigeria’s military repelled an attack by suspected Boko Haram militants on Borno state capital Maiduguri in the northeast, security sources said on Sunday, but the insurgents captured another town in the region.

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