With most of the votes counted in yesterday’s Greek elections, the Syriza party with leftist leader Alexis Tsipras looks like a sure win. The 40-year-old Tsipras is on course to become prime minister of the first euro zone government to openly oppose austerity policies imposed by the European Union and International Monetary Fund as a condition of its bailout in 2012. In his early victory speech on Sunday, Tsipras declared that five years of austerity, "humiliation and suffering" imposed by international creditors were over, while promising to renegotiate the country's huge debt.
Analysts predict that Greece's economy is unlikely to recover for years and that Tsipras faces huge problems ahead. His non-austerity outlook raises the possibility of a major conflict with euro zone partners, especially German Chancellor Angela Merkel, and increases the risk of a sovereign default in Greece.
Tsipras has promised to keep Greece in the euro and has pulled back from some on his previous oratory but his victory will prove a test for austerity programs employed by euro zone governments during a country’s economic crisis.
Financial markets have been worried for some time that a Syriza victory could generate a new financial crisis in Greece, but even before the abandonment of the Swiss franc cap by the SNB last week, analysts were predicting far less impact than originally feared.
Negotiation Promises
Tsipras has promised to renegotiate agreements with the European Commission, European Central Bank and International Monetary Fund and write off much of Greece's 320 billion-euro debt, which at more than 175 percent of gross domestic product, is the world's second highest after Japan.
In addition, Tsipras intends to pull back many of the measures demanded by the "troika", such as raising the minimum wage, lowering power prices for poor families, cutting property taxes and reversing pensions.
At present, Greece is unable to lean on other financial markets for help because of too high borrowing costs but it claims to have enough funds to meet its immediate financial needs for the next couple of months. It faces around 10 billion euros of debt repayments over the summer.
Despite growing concern in the markets before voters went to the polls, economists feel more confident now that a deal with Europe can be reached. U.S. investment bank J.P. Morgan said that it considered the possibility of a Greek exit from the euro "a stretch" adding “our base case remains that a Syriza government or Syriza-dominated coalition would alter its platform to retain troika financing."
In a move to allay fears, Syriza officials indicated that they would wait at least six months before taking any bailout moves, allowing themselves sufficient time hold talks with their creditors.
Still, the possibility that Greece will exit the euro zone will keep global markets nervous for some time to come.
"A period of uncertainty and heightened market nervousness now seems likely," said Capital Economics Chief European Economist Jonathan Loynes in a note. Syriza's victory "ultimately raises the risks of a Greek exit from the euro-zone," he said, noting "the risks of a re-ignition of the euro-zone crisis have risen significantly."