After a landslide win that beat analyst expectations, Greece’s radical left-wing party Syriza have come straight out of the gates and agreed a coalition deal, giving them a majority.
On their own, they have got 149 of 300 seats already, beating the centre-right New Democracy by eight percentage points, more than was suggested by polls last week.
After a meeting with the Independent Greeks this morning, Syriza have agreed to form a government. The right-wing but anti-austerity party might make for an odd coalition partner, but got 4.7% of the vote and 13 seats.
That gives the coalition 162 seats. Not a massive majority, but larger than the last government’s 155. There’s likely to be some surprise that Syriza didn’t go for a coalition with To Potami, the new centrist party that won 17 seats.
Syriza’s next job is to begin negotiations over its debts and bailout agreement. But they’re already running into predictable opposition this morning.
Finnish Prime Minister Alexander Stubb has been one of European politicians most obviously opposed to any restructuring of Greece’s heavy debts. He’s reiterating that again this morning, telling domestic media that the new government must “respect previous commitments”.
European Central Bank board member Benoit Coeure has been saying much the same this morning: “It’s absolutely clear that we cannot agree to a debt relief that includes Greek bonds that are located at the ECB.” The official sector, institutions like the IMF and ECB, own a big chunk of Greece’s public debt.
Syriza’s programme is entirely against Greece’s bailout, and the strictures attached to it, but it looks like they will have to negotiate for it to be continued for the time being. The current bailout (and the government’s immediate method of financing) runs out in February.
Here’s Capital Economics on what comes next:
Greece’s current bail-out runs out in February and the country faces heavy debt redemptions over the coming months. So the first challenge is probably to agree some short-term extension of the programme. Beyond that, though, there is a danger of a prolonged stand-off with the Troika as Syriza attempts to negotiate some form of official debt restructuring while not reneging on its promises to voters to cut taxes, raise government spending and increase the minimum wage.
And here’s Citi:
The Eurogroup on January 26 will discuss an extension to Greece’s bailout (which expires at end-February), but a formal request for such an extension by the Greek government is required before it can be approved. Negotiations over a follow-up bailout may well take months, in our view, and be associated with some financial market volatility. In this context, it is worth noting that even though an eventual agreement on a bailout is likely needed to keep Greek banks and the Greek government funded, buffers exist to potentially address funding pressures in the interim, such as emergency liquidity assistance for Greek banks or increased bill issuance or arrears for the Greek sovereign.
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