Greece's Year of Tumult Enters New Chapter as Tsipras Dominates

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Greece Looks to Austerity as Tspiras Wins Mandate
  • Syriza leader returns with stronger-than-expected mandate
  • Government must now implement austerity measures for bailout

Greek voters had the choice to reject the man who led their country closer than ever to being forced out of Europe’s single currency. Instead, they embraced him.

Alexis Tsipras and his Coalition of the Radical Left, or Syriza, emerged from a second election in eight months with a level of support barely diminished from the emphatic victory that catapulted him into both power and a standoff with the euro region. Syriza, which took 35.5 percent of the vote versus 28.1 percent for the center-right New Democracy, will enter a coalition with the same small party that helped it rule before.

While the victory tightens Tsipras’s hold over Greek politics, it also exposes the paradoxes of a country whose economy is a shadow of its former self and where controls remain on bank withdrawals. After coming to power pledging to end austerity and restore “dignity,” Tsipras now must make the further sharp spending cuts and tax increases he ended up agreeing to in exchange for 86 billion euros ($97 billion) of fresh European aid.

The electorate has voted to return to power a party that “ditched its promises, switched its policies, and caused the collapse of Greek banks, bringing in an unneeded recession,” said Stathis Kalyvas, a professor of political science at Yale University. On the other hand, “this government will be called to implement a stringent set of fiscal and structural reforms that it vigorously rejected before,” he said.

Markets Muted

Greek government bonds posted the biggest returns in the euro area over the past month and the country’s stock market also rallied after Tsipras changed his tune. They were little changed today. The benchmark stock index in Athens was down 0.8 percent at 11:20 a.m. local time, while the yield on Greece’s 10-year bonds rose six basis points to 8.29 percent.

Greylock Capital Management LLC, a longtime investor in Greek debt, will look to add to its exposure to Greece now that Tsipras has a mandate to implement the measures agreed with creditors, co-Chief Investment Officer Diego Ferro said in a phone interview from New York.

“The uncertainty has now been removed because Tsipras has the political mandate to implement austerity measures and Greece should start moving forward,” Ferro said. “Tsipras seems to be a lucky politician.”

Hot Summer

Greeks this summer faced some of the most harrowing moments of their six-year financial crisis as Tsipras, a former Communist Party activist, entered a game of chicken with other European leaders over their criteria for granting the new bailout, the country’s third since 2010.

Supporters of the Syriza party.
Supporters of the Syriza party.
Photographer: Kostas Tsironis/Bloomberg

Banks were closed, commerce ground to a halt, and European officials began to talk openly of Greece exiting the euro. The crisis was only resolved when Tsipras caved in to creditor demands, agreeing to a package of requirements arguably even more onerous than the one Greek voters rejected in a referendum less than two weeks earlier.

As a result of that deal, Tsipras’s power over matters of taxation, spending, and regulation will be minimal in his second stint at Maximos, the official Athens residence of the Greek prime minister. Virtually all key economic decisions have effectively been made by European finance ministers and central bankers, and any deviation risks a halt to aid payments.

“I think we will see a fairly stable government,” Thomas Wieser, head of the euro finance officials group that prepares meetings for ministers, said in a television interview. Tsipras “has bought into the program and
we expect a strong implementation” of the bailout measures, he added.

Lower Turnout

Beyond voter apathy, Tsipras paid almost no political price for his about-face on austerity. Turnout on Sunday at 56 percent was the lowest since at least the 1990s, and the election failed to engender the same flag-waving and car horn-honking as the other votes this year. A small crowd watched an outdoor TV screen in the central Syntagma Square in Athens on Sunday night, normally the scene of raucous celebrations.

Greeks began voting Sunday in a general election to determine who will lead efforts to implement European bailout agreements and restore economic normalcy to the continents most indebted country.
Greeks began voting Sunday in a general election to determine who will lead efforts to implement European bailout agreements and restore economic normalcy to the continents most indebted country.
Photographer: Kostas Tsironis/Bloomberg

Zoe Makrigianni, a 20-year-old student in Athens, showed up with other Syriza supporters to celebrate the win at a smaller square nearby.

“I expected a victory, but not by such a big margin,” Makrigianni said as she hugged friends. “We have a rescue program and we have to implement it. The question was who would do it most fairly.”

Syriza’s share of the ballots was about one percentage point less than what it received in January’s general election. Popular Unity, a splinter group of left-wing Syriza lawmakers who abandoned the party over the bailout deal, fell short of the 3 percent threshold to enter parliament. Those defections in August cost Syriza its governing majority, forcing the new vote.

Unreliable Polls

While Syriza’s electoral performance was better than pollsters expected, the party still fell just short of a majority of seats in the 300-member parliament. It plans to enter another coalition with the right-wing Independent Greeks party, which received 3.7 percent of the vote and 10 seats.

With an expected majority of just five seats in parliament, down from a dozen, the Syriza coalition will have little room for error.

People react to exit polls in Athens, Greece, on Sunday, Sept. 20, 2015.
People react to exit polls in Athens, Greece, on Sunday, Sept. 20, 2015.
Photographer: Kostas Tsironis/Bloomberg

If Tsipras can finally also win over European leaders and the International Monetary Fund, he may be able to strengthen the country’s financial position. Syriza has long called for a writedown of Greece’s 300 billion euros of government debt, while creditors have held out the prospect only of easier repayment terms.

Such progress would go over well with hard-up Greeks, whose economy has shrunk by a quarter since 2009.

The country’s voters have shown “they want the Tsipras that makes deals with creditors,” said Holger Schmieding, chief economist at Berenberg Bank in London. “They still trust Tsipras, after everything.”

For more, read this QuickTake: Greece’s Financial Odyssey

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