Five years in to the euro crises since 2009, on the 25th of January, general elections were held in Greece for the Greek parliament. The election results clearly show that Greek voters have rejected tax rises and government spending cuts, imposed by Eurozone and have elected the left-wing Syriza party. The Syriza party has won 149 out of the 300 seats, falling two seats short of 151 needed to form government without coalition partners.
It is important to note here that the Syriza party is against austerity and has promised to roll back austerity measures and renegotiate Greece’s debts. Alexis Tsipras, the Syriza leader openly opposes the European Union and International Monetary Fund’s bailout conditions, imposed on Greece during the economic crises. Referring to the country’s biggest lenders; European Union, International Monetary Fund and the European Central Bank, after the election result, Tsipras said “Greece has turned a page. Greece is leaving behind the destructive austerity, fear and authoritarianism. It is leaving behind five years of humiliation and pain.” This will put Greece in confrontation with the global lenders, especially European lenders.
In response to the victory of Syriza party in the Greek elections, the Euro fell down to its 11-year low against the dollar before recovering mildly, but still down to 0.3% from last week. For Euro, this is the second blow since last week. Earlier on Friday, we saw the dollar rally again, after the European Central Bank had announced that it would flood markets with over a trillion euros, through its huge bond-buying stimulus programme to prevent the eurozone from falling in to deflation.
European stocks also felt the pressure and their values have fallen. The impact of the Greek elections was not just confined to Europe alone; in fact the concerns of results of Greek elections leading to instability in Europe had a global impact. For instance, Japan’s Nikkei .N225 and U.S. stock futures fell by 0.6 percent. Even the U.S. crude oil almost fell to a 6 year low and on Monday.
There is now also a fear that renegotiation between Greece and other eurozone governments could increase the risk of Greece leaving the Euro currency union. Therefore, if Greece leaves the euro, markets won’t respond well. Hence, we can expect further uncertainty in the euro, until the stance of Syriza on the debt is clear. According to Jonathan Loynes, chief European economist at Capital Economics; “There is a danger of a prolonged stand-off with the Troika as Syriza attempts to negotiate some form of official debt restructuring while not reneging on its promises to voters to cut taxes, raise government spending and increase the minimum wage.” However, according to the general consensus in the market, broader investor sentiments are unlikely to be hurt much beyond an initial shock, amid any renewed tensions over Greece. Furthermore, according to analysts; now European policymakers have frameworks to deal with indebted countries and exposure of European Banks to Greece is also limited now.
Since the current bailout of Greece is expected to end in February. Therefore, the German central bank said that Greece is in need of more loans, but only under eurozone terms. €7bn is available to Greece, if it extends its deal. However, Syriza has rejected bailout under current conditions being imposed. In fact, Tsipras wants rewriting of the terms of the 2012 bailout by easing of fiscal orthodoxy and relief on Greece’s national debt.
The victory of an anti-austerity party in Greece is a celebration for Gerry Adams’s Sinn Féin in Ireland, Podemos upstarts in Spain and the Five Star anti-establishment mavericks of Beppe Grillo in Italy. It might also set a path for other European countries like Spain, expected to have elections this year to reject the policies imposed by European Union on them.