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Why Syriza's Victory Is A Poisoned Chalice

Syriza has just overturned one of the most rigid two party systems in modern European politics.

It has triumphed at the ballot boxes despite massive resistance from investors and media. It has somehow persuaded the Greek people that it can turn around the economy and renegotiate the country’s bailout.

Now (NYSE: DNOW - news) , the hard work begins.

Having formed a Government, the next few weeks will be crucial for Alexis Tsipras . In essence there are three intertwined questions.

First (Other OTC: FSTC - news) , can he secure any kind of compromise from his fellow eurozone ministers over the Greek bailout? After all, that was his key pledge in his election manifesto. Doing so will not be easy: it will mean persuading the European Council and the eurogroup in Brussels, where he’ll travel in mid February, that he is serious.

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A compromise is still the most likely outcome, though Mr Tsipras’s decision to join up with the right-wing Independent Greeks is a bold first step. They share few policies with Syriza save for their outright opposition to the bailout.

Second, do his plans for the domestic economy add up? During the campaign, Syriza made a number of radical proposals: free electricity, subsidised rent, free healthcare, higher salaries and pensions for the civil service, an increase in the minimum wage, abolishing the existing property tax and so on.

The party claims these policies will be self-financing: they will cost €11.4bn, but the stronger growth they engender will mean €12bn of extra revenues. The Greek finance ministry, which routinely examines such proposals, estimates they would cost at least €17.2bn.

Third, how will investors, taxpayers and depositors react? After all, if there are bank runs, or if people attempt to pull their money out of the country, the plans of both Greece and the rest of the eurozone could be rendered irrelevant.

For the time being, the signs are relatively reassuring on this front. Although share prices have fallen in recent months - and the Greek government’s cost of borrowing has risen - the reaction this morning has been quite muted. In fact, the euro rose against the dollar as trading began.

However, investors will have to prepare themselves for a rocky few months. Both sides are likely to engage in some serious brinksmanship as they tackle the core debate: does Greece really have any hope of paying off its bailout loan? And, if not, how do they agree a way of reducing its debts without outraging at least one constituency across the continent.

No wonder Yanis Varoufakis, Tsipras’s primary economic adviser, has described the election victory as a poison chalice.