The results are in.
Greece has given Europe a clear message.
You can take your austerity and shove it. Oh and by the way, we’ll hang on to the euro as well. And we don’t really want to repay all that debt we’ve been lumbered with.
It’ll be interesting – to say the least – to see how Europe responds.
So what happens now?
A resounding victory for Syriza
The left-wing anti-austerity party Syriza – led by Alexis Tsipras – has won a major victory in Greece. At the time of writing, with most of the votes counted, it had won 150 seats – one short of an absolute majority.
But it had also made a deal with a small right-wing party (the Independent Greeks) which is also anti-austerity, and is set to win 13 seats.
In short, Syriza is in charge, and it has no major coalition partners to hold it back.
What does all this mean?
First things first – it’s worth understanding that this is not a vote by Greece to leave the euro. That’s the big difference between this Greek election and the last one.
Last time round, Syriza had a much more directly anti-euro message. Then they were smart enough to figure out that for most Greeks, that was a bit of a turn-off. Even although the underlying problem here is the shared currency, very few people like the idea of seeing their savings turned into a different and almost certainly weaker currency overnight.
So they were pragmatic enough to change their message. Now Syriza is telling the Greeks they can have their baklava and eat it. You can stay with the euro, but you can also ditch austerity and renegotiate the debt pile.
Syriza wants to do lots of things, from reinstating public servants who’ve lost their jobs to raising the minimum wage. But it all boils down to spending more, and renegotiating the country’s massive debt pile.
As Jonathan Loynes of Capital Economics points out, that could come to a head very quickly. Greece’s current bailout runs out in February. That bailout was agreed with the ‘troika’ – that is, the European Central Bank (ECB), the International Monetary Fund (IMF) and European Commission.
“The first challenge is probably to agree some short-term extension of the programme”, says Loynes.
And that could be tricky. As part of his victory speech, reports the BBC, Tsipras said that Greek voters had “put the troika in the past” and the “vicious circle of austerity” was over. He also said “there will neither be a catastrophic clash nor will continued kowtowing be accepted”, but that rather depends on how happy the troika are to negotiate.
Why even the worst-case scenario is not necessarily disaster
There are lots of potential outcomes here. So let’s cut to what matters.
I have no idea what Syriza will do in practice, or how the eurozone’s authorities will react. My gut feeling is that – as with every other eurozone crisis so far – some sort of messy fudge will be reached that allows all parties involved to save some face.
There will be various threats and bluster on both sides. But Greece will stay in the eurozone. Its creditors will probably see their date of repayment pushed further out into the future, but it’ll be a quiet sort of default rather than a dramatic one.
However, that could all be wrong. Maybe Syriza’s far-left will take charge. Maybe one side or the other will push too hard in the talks and someone’s bluff will be called. Maybe a Greek exit is the end result of all this.
But even then you have to question how much that matters in the grand scheme of things.
In 2011/12, there were two main fears over a Greek exit. Firstly, that it would be like Lehman Brothers all over again – with Greek-exposed banks blowing up and causing chaos across the financial world.
Secondly, that there’d be a domino effect. Other austerity-ridden eurozone countries would see the Greeks leave and decide it was the best option for them too.
Today, the Lehman scenario is less of a risk. Anyone with exposure to Greek debt now knows the risks. And with the ECB now printing money, the pain of a Greek exit would be cushioned by plenty of printing.
The second scenario is arguably more of a risk. The biggest threat to the eurozone as a whole is that the Syriza victory gives a boost to anti-euro and anti-austerity parties in other countries – particularly a biggie like Italy or Spain.
But if that happened with a country that genuinely mattered to the euro project, you’d expect the troika to deal with that very differently.
In short, this is likely to be a long drawn-out process – don’t expect a cathartic solution to arrive one way or another. But I’d still be happy to own stocks in Europe, because Greece simply isn’t as big a threat as it once was.
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