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Political Gamble Results in Victory – Again – for Tsipras to Retain Power in Greece. Difficult Steps Ahead to Slash Spending, Hike Taxes, and Overhaul Policies Tied to EU Bailout (9/21)     Print Email

spellmanBy James D. Spellman, Strategic Communications LLC

In a surprising and conclusive victory, the prime minister who had sharply reversed his ruling party’s approach by negotiating an eleventh hour bailout deal with Brussels last month, forcing Sunday’s election, won nearly half of Parliament’s seats.

The ironic consequence of the high-risk political gamble is that Alexis Tsipras returns to power with the same coalition partner he joined forces with in January, avoiding the permutations of power-sharing arrangements analysts were speculating about only hours before the polls opened.  Those tenuous deals would have promised political instability and made execution even more unlikely of the painful reforms, budget cuts, and tax increases that the European Union insisted were key for Greece to secure loans and obtain capital to jumpstart economic growth.  

With 35.5 percent of the vote, Syriza seems likely to win 145 seats, with its coalition partner, the Independent Greeks, getting 10 (3.65 percent of the vote).  The two parties’ control of 155 seats will be enough to control the 300 seat Parliament, even though the tally is seven short of those held together after January’s election.[1]

One of Tspiras’s fiercest critics, House speaker Zoe Konstantopoulou, lost her bid for Parliament, running as a Popular Unity candidate, another example of just how remarkable the Tsipras victory is. That party garnered only 2.8 percent of the vote, below the three-percent threshold needed to secure seats in Parliament. 

The far-right, some say “neo-Fascist,” Golden Dawn emerged as the third biggest party, with about 7.1 percent of the vote.

Syriza (Pink) Victory in Polls

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On top of a photo of a bird soaring in flight above the ocean, Tspiras wrote in his tweet, “The road is open before us for work and struggle.” That came less than an hour after the polls closed and the major opposition party, New Democracy, conceded defeat, underscoring how rapid and decisive the victory was, contrary to polling results the day before showing a neck-to-neck contest. Greece’s Interior Minister quickly announced Tsipras’s victory when only 31 percent of the votes tallied.

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"This result does not belong to Syriza,” Tsipras said at a rally in announcing his victory.  “This result belongs to the working classes of this country, the people who fight for a better tomorrow, who dream of a better tomorrow, and this is something that we will achieve through a lot of hard work."

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With turnout low, apparently the lowest (55 percent of 9.5 million eligible voters) in post-war history despite a mandatory but unenforced voting law, and many Greeks complaining of election fatigue, some analysts said that that apathy may erode Tsipras’s bravado in wielding power in the months ahead.  But the post-election euphoria seemed to dispel those concerns as Tsipras emerged a more resolute and savvy leader.   

Polls Showed Neck-to-Neck Battle on Election Eve

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Source:    http://www.vox.com/2015/9/19/9353749/sundays-greek-election-explained

   

Election Turnout in Greece’s Elections for Parliament

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Source:   International Institute for Democracy and Electoral Assistance (International IDEA).  http://www.idea.int/vt/countryview.cfm?id=89 .

Some EU member-country leaders and officials were quick to welcome Syriza’s victory. “This is an important outcome for Greece, which will now live through a stabilization period with a solid majority. It is an important success for Europe, which must listen to the Greeks’ message,” said François Hollande, France’s president and a strong ally with Greece. The president of the European Parliament, Martin Schulz, also expressed congratulations through a tweet. In press reports, unnamed EU officials expressed relief, “thinly disguised comfort,” as a Guardian reporter wrote.[2]

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One analyst, Mujtaba Rahman of the Eurasia Group, thought the results were “the worst possible outcome.  Given how challenging the bailout agent is between now and year-end, a return of the previous coalition isn’t great news.  Tonight’s result will worry creditors.”

But the markets in the weeks before Sunday’s election suggested some confidence in Tsipras. Yields for Greece’s government bonds soared, as values of the bonds plummeted (bond values move in opposite direction of yields), in response to worries that Tsipras may not be re-elected. 

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Much work lies ahead.  A 2016 budget, a three-year fiscal plan that carries out commitments to the EU in exchange for bailout funds (including doubling the tax on farmers, overhauling the pension system, and restructuring management of social security funds) has enormous challenges.  Banks, too, must become more financially secure through a recapitalization – building up the funds banks can earn money from lending and investing that money – program. 

Delays will compound the inevitable costs, as with shoring up the banks, perhaps putting back on the table for negotiation even more unpalatable policies, such as a haircut of all deposits.  A stress test of the banks, including an analysis of the loan portfolio’s risks, is due on September 30, one of the many mileposts ahead that could be triggers for the erosion in confidence in Tsipras’s capacity to govern.

Skepticism is high that Greece can honor all those commitments, especially within the agreed timetable. "This means at some point, Greece and its creditors will end up back at the negotiating table wondering what to do about Greece being behind on its targets," said Megan Greene, chief economist at Manulife Asset Management. 

"Greece is not sustainable and the big issues are how far the program will go off track and how many Eurozone members will join Germany in viewing missed targets as no longer a price worth paying," said Gabriel Sterne, the head of global macro research at Oxford Economics.   

The International Monetary Fund equally agrees that the debt load is “unsustainable,” and has called repeatedly for debt relief as part of the bailout program.  The institution supports lengthening bond maturities to 30 years or lowering interest rates, but not forgiving any debt outright, its chief, Christine Lagarde, has said.[3]  The European Central Bank, the European Financial Stability Facility, the IMF, and Eurozone governments together own about 80 percent of Greece’s sovereign bonds.    



[1] “Tsipras returns to power with clear election win.” Kathimerini, September 21, 2015.

http://www.ekathimerini.com/201733/article/ekathimerini/news/tsipras-returns-to-power-with-clear-election-win

[2] Helena Smith and Graeme Wearden, “Greek general election: Syriza returns to power.”  The Guardian, September 21, 2015. 

http://www.theguardian.com/world/2015/sep/20/syriza-set-to-return-to-power-in-greek-general-election .

[3] Marcello Minenna, “For Greece, Only Debt Relief Will Do.”  Wall Street Journal, September 16, 2015.  www.wsj.com