Greece's anti-austerity party takes over; what comes next?

January 26, 2015 09:17 AM

Alexis Tsipras was sworn in as Greek prime minister and handed a mandate to form a government that will challenge international creditors over the budget cuts he said had heaped humiliation on the country.

Tsipras’s Syriza party and the Independent Greeks announced plans for an anti-austerity coalition in Athens on Monday after Syriza won an emphatic election victory by harnessing a public backlash against years of job losses and hardship. In a post- election speech, Tsipras said his priority is “for Greece and its people to regain their lost dignity.”

The Independent Greeks will support Syriza in a vote of confidence once Parliament reconvenes on Feb. 5, party leader Panos Kammenos told reporters after holding talks with Tsipras. As the Syriza leader met with President Karolos Papoulias to take over the reins of Europe’s most indebted country, euro-area finance ministers were gathering in Brussels to discuss Greece and the future of its bailout program.

“As of this moment there’s a government in Greece,” said Kammenos, a former shipping minister before the debt crisis who defected from outgoing Prime Minister Antonis Samaras’s New Democracy to form Independent Greeks in February 2012.

Greece’s program of austerity was in return for pledges of €240 billion ($270 billion) in aid since May 2010. The challenge for Tsipras, 40, now is to come good on his election pledges, including a writedown of Greek debt, while persuading creditors from the European Central Bank, the International Monetary Fund and the European Commission to keep aid flowing.

‘Friendly’ Relations

Germany’s position, as Europe’s paymaster and the biggest country contributor to the bailouts, will be key.

Its stance on the need for Greece to uphold its commitments “is no different than before the election,” Steffen Seibert, Chancellor Angela Merkel’s chief spokesman, told reporters in Berlin. “The German government -- and that naturally includes the chancellor -- is offering to work with the new government. We have an interest in a very good, friendly Greek-German relationship.”

While Greek stocks and bonds fell, the euro climbed for the first time in three days against the dollar as investors concluded that a Greek exit from the single currency zone was less likely. The European Central Bank’s new bond-buying plan sheltered the region’s debt markets from any potential contagion, with yields on equivalent government debt from Portugal to Ireland little changed or edging lower.

Connecting Dots

The ECB’s announcement of quantative easing three days before Syriza’s win “provides a much-needed counterweight to post-election uncertainty in Greece,” said Nicholas Spiro, the managing director of Spiro Sovereign Strategy. “From a peripheral debt market perspective, Syriza’s convincing victory is, for the time being, a non-event. Yet investors would be well advised to start connecting the political dots.”

Even as the European Commission said it too was ready to engage with the new Greek government, the tenor of Syriza’s coalition partner suggests compromise may be hard to achieve.

Kammenos said as recently as last week that Greek debt should be audited and its “odious” part written down, whether creditors like it or not. Europe, he said, is being governed by “German neo-Nazis.”

“In terms of social issues, foreign affairs, civil liberties, we are chalk and cheese,” Yanis Varoufakis, an economist and Syriza lawmaker who is tipped as a potential Greek finance minister, said in an interview with Bloomberg Television. “What we are hoping for is that the number one issue that concerns the nation and Europe at the moment is one where the Independent Greeks are going to, if not be fully supportive of our stance, at least they will not undermine it.”

Financing Needs

According to Vincenzo Scarpetta, a political analyst at the London-based Open Europe research group, political stability in Greece will be in short supply, leaving the medium-term outlook “far from clear.”

Investors must now wait for Tsipras to spell out how he plans to negotiate Greece’s future financing needs. An extension of the current euro area-backed bailout program expires at the end of February, with Greece projected to run out of money by July at the latest.

For Syriza’s Varoufakis, Greece’s bailout wasn’t a rescue but “a vicious cycle,” that patently hasn’t worked. “We want to sit down with our colleagues in Europe and find a mutually beneficial agreement,” he said.

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