New Greek elections have been scheduled for 20 September. What does this mean for Greece and the future of the single currency?
So what’s happened?
The Greek prime minister, Alexis Tsipras, has decided to resign. While the heads of the other opposition parties will be given a few days to form their own government, this is very unlikely to succeed. As a result, election are likely to be called for 20 September.
Tsirpras hopes that the results will give him a renewed mandate to implement the reforms and spending cuts agreed as part of the bailout. In a related move, 25 MPs from the ruling party, Syriza, have left to form their own anti-bailout party, Laiki Enotita (Popular Unity). This party will be lead by former energy minister Panagiotis Lafazanis.
What is the most likely outcome?
Published opinion polls suggest that Syriza has a substantial lead over their main rivals New Democracy of around 20 percentage points. However, the last set of polls were in early July, so they may not be an accurate reflection of current reality. The creation of Popular Unity is also likely to drain votes from Syriza.
The only positive for Tsipras is that the new movement doesn’t contain more well-known opponents of austerity such as former finance minister Yanis Varoufakis or parliamentary speaker Zoe Konstantopoulou. Ian Forrester of The Share Centre thinks that the new government “may be more left-wing and opposed to the reforms and austerity measures agreed in the bailout deal”.
Will this affect the reforms?
The European Commission argues that this shouldn’t affect the implementation of the programme agreed earlier this month, and claims that it was expecting this. However, others are not so sure. Firstly, the political chaos is going to make it difficult to pass votes on key reforms, especially since the likely caretaker prime minister is herself opposed to austerity.
In recent years there has been a tendency for Greeks to postpone paying their taxes in the run-up to an election. This is because they are eager to hang onto their money until they are certain who is going to be in power. The Slovakian finance minister has also criticised the “cynical timing” of the announcement, which comes almost immediately after Athens received the first part of the bailout money.
Does this mean that the deal could unravel?
Possibly. With consumer confidence plunging, Greece is unlikely to meet even the recently revised fiscal targets. However, as we’ve seen during the past few weeks, both Greece and Germany have had a huge amount of political pressure placed on them, from both inside and outside the European Union to be “flexible”.
After all, the fact that Greece joined the euro, let alone stayed in it for so long, is evidence that decisions aren’t been taken in strict accordance of economic logic. Perhaps the only thing we can say is that, as Jennifer McKeown of Capital Economics puts it, “the threat of Grexit has far from evaporated”.