LONDON (Reuters) – The limbo in which Greece has entered weaken Europe’s recovery. The failure of the Greek Parliament to define the country’s president will lead to new elections and that could bring to power the leftist Syriza, which would put Athens at odds with its European creditors.
The last Greek crisis is not the same that led the country to seek bailouts of 2010 and 2012. The euro area has a banking union and a European Central Bank more activist is committed to buy a billion euros in assets. In addition, 90% of the public debt of Greece is now in the hands of other governments in the euro area or the ECB.
The next elections could bring to power Syriza, a party which although has recently moderated his tone, has a program that is separated by a yawning chasm with the wishes of European creditors. Syriza wants greater debt relief, relaxation in tax policies and rejects the neoliberal economic agenda that Athens has had to accept as the price for their bailouts.
This gap creates the risk of a chaotic and abrupt exit of Greece from the eurozone if the rest of the block fails to appease Syriza. However, this is not the most likely scenario.
A government led by Syriza lack of bargaining power. Probably have to form a coalition with other pro-European parties and the influence it would have on the creditors is weak: the current bailout program expires in February and the current performance bonds -now 9.5% for the 10-years-let Greece without market access and the obligation to agree terms with Europe.
The most likely scenario is a period of dispute between Greece and other governments in the euro zone, amid continued political uncertainty. The reformist path, now aimlessly, was derailed further. The economy will suffer a fall in investment and even higher funding costs.
The yields on Greek bonds to three years are now at the level of April 2010, before the first rescue.
The uncertainty could undermine the plans of the European Central Bank to buy sovereign debt, which some expected to begin on January 22, three days before the newly scheduled Greek election.
The demands for SYRIZA to extend the Greek debt held by the ECB illuminate the German opposition to purchases of sovereign bonds.
The ECB could find a way to deal with the Greek problem in your purchase program, but a victory for Syriza further weaken the confidence of investors as the central bank is about to launch its experiment.
The rise of populism in Greece is a consequence of the inability of Europe to address excessive debt and designing pro-growth policies. Investors could see Greece not as an exception but as a leading indicator.
Context of the news
Greek lawmakers failed to elect a new president this December 29, triggering early parliamentary elections. Stavros Dimas, proposed by the coalition government, candidate received 168 votes, less than the 180 that were required in the third and final round of voting.
Prime Minister Antonis Samaras said he would ask the current president to call early elections on January 25. Recent polls show the party Samaras, New Democracy, lose to Syriza, led by Alexis Tsipras.
The yields on Greek bonds to three years rose more than 120 basis points this December 29, 11.7%.
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