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Investors are anxiously waiting the results of today’s parliamentary elections in Greece, a repeat of elections on May 6 that failed to produce a government.As the leading opposition party repudiates the terms of the aid package Greece has received from the European Union and the IMF, European leaders led by Germany insist that this vote is a referendum on Greece’s euro membership, and that there will be no wiggle room to negotiate the bailout deal.
Brinksmanship at its best.
Here’s a look at the Greek players:
- AP/Petros GiannakourisSamarasAntonis Samaras and New Democracy: Samaras and New Democracy once frightened European leaders when they took a tougher stance against austerity, but remarkably their party has come full circle to represent the pro-bailout incumbency. While Samaras has now called for some changes to the terms of the deal which would ease downward pressure on the Greek economy, ND’s commitment to the bailout and euro membership dictate its policies. New Democracy won 18.9 per cent of the vote on May 6.
- PIAZZA del POPOLO, FlickrTsiprasAlexis Tsipras and SYRIZA: Tsipras and his party argue that Greek’s bailout agreement is untenable because harsh austerity policies have forced the country into a Great Depression from which recovery in the medium-term is unlikely. They argue that Europe has much to lose from a Greek exit, and therefore EU leaders are bluffing when they frame the elections as a referendum on the euro and refuse to consider any amendments to Greece’s bailout agreement. SYRIZA won 16.8 per cent of the vote on May 6, and appeared to win support directly after those elections.
- APVenizelosEvangelos Venizelos and PASOK: PASOK led the Greek government from June 2009-November 2011, and support for the party declined dramatically as the crisis worsened. Analysts expect little dissension between PASOK and New Democracy on the bailout. PASOK won 13.2 per cent of the vote on May 6.
While four other parties also won seats in the May election, analysts are focusing on the success of these three parties primarily because both SYRIZA and ND-PASOK governments will face difficulty winning support from other parties.
As a newly created party, SYRIZA incorporates a smattering of radical, unfocused political views, many of which are at odds with other fringe parties.
Then again, support for ND-PASOK is fragile, as both parties supported a program which has been devastating to the Greek economy. What’s more, their long tenure as the two primary Greek parties has earned them a reputation of corruption and backwardness.
The problem for Europe
A disorderly Greek exit from the eurozone could be disastrous. Not only would it provoke bank runs in other troubled European countries like Spain, Italy, Ireland, and Portugal, it would compromise investor faith in the basic tenets of the euro system.
That said, European leaders are arguing that they could manage a “Grexit,” and thus generally refuse to renegotiate the terms of the Greek bailout. Europeans are loathe to devote more money to a country that flouts regulations, spent itself into a hole, and cooked its books.
Even if the pro-bailout parties win, however, Europe will likely have to give some ground to Greece, either in the form of more aid or stimulus, extensions on international loans, or even another structured debt restructuring. Greece and its banking system are still insolvent, and without growth there is no way they will return to solvency.
Three election outcomes are possible:
- New Democracy wins and can form a coalition with PASOK: New Democracy probably has to win the most votes outright because the leading party earns a 50-seat bonus. With PASOK, ND can secure more than 151 seats and form a ruling coalition. While it is unlikely that another party will join this effort, the Democratic Left could potentially be swayed to join the coalition.
- SYRIZA wins enough support to form a government: While unlikely, it is feasible that SYRIZA could win some 40.4 per cent of the vote, making it a viable coalition on its own. This would save it from having to negotiate with other fringe parties, whose support would likely be difficult to engage. No matter how it formed, such an anti-bailout coalition would bode ill for EU leaders, and for markets.
- Deadlock: It is highly likely that the distribution of political support has not changed significantly from May 6. As in May, all parties would have difficulty forming governments and Greece would be forced into another round of elections. Europe is likely to halt aid payments to Greece until the elections are sorted out, but a looming bond payment on August 20 could induce investor angst.
Polling closes at 12 PM ET and flash estimates are published almost immediately afterwards. Those results will give us the first hint at how the elections played out.
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