Alexis Tsipras’ Syriza party won the most seats in Sunday’s Greek election, gaining a 35.5% share of the vote. The New Democracy party, which was running neck-and-neck with Syriza in the polls at the end of last week, won 28.1% share of the vote. Snap elections were called after Tsipras suffered large defections in his own party in protest of the reform measures agreed in the latest bailout.
Speaking to supporters after the results, Tsipras said he felt ‘vindicated’ and has been given a ‘clear mandate’ by the Greek public. Tsipras will now need to form a coalition as his party is projected to get 145 seats, short of the 150 seats needed for a majority. Having rejected a coalition with the New Democracy party on the basis that it would be ‘unnatural’, Tsipras will now likely renew the coalition with the Independent Greek party. But a broader coalition with one of the other smaller parties such as PASOK cannot be ruled out in order to establish a stronger majority.
The new government now faces a tough challenge of implementing the reform measures agreed as part of the third bailout deal worth up to €86 billion. The head of the Eurogroup, Jeroen Dijsselbloem, said he stands ready to work closely with the Greek authorities. All the main parties had pledged to continue with the reforms promised in the bailout agreement but doubts remain whether the Syriza party will be able to pass through all the required measures.
Sensitive reforms such as raising taxes for farmers, cutting pensions and overhauling the tax code could meet opposition within Tsipras’ own Syriza party despite the defection of a large number of hard leftists. Also, Alexis Tsipras himself only succumbed to the reforms in a desperate bid to keep Greece in the euro and may lack the commitment to see through some of the tougher measures. With the wide majority of the Greek public still opposed to austerity, the government has an uphill road to reform ahead of it.
Following the election win, October may prove a tougher test for Tsipras and his government as Greece’s international creditors are due to start the first review of the reform measures as part of the third bailout. The review may prove critical in deciding whether or not the creditors will approve some form of debt restructuring for Greece. Although a debt write-down is not expected, Eurozone leaders are considering the possibility of extending the grace period or reducing the interest paid on the loan.
The markets were muted in their response to Greece’s election outcome. The Athex General Index was 0.5% lower in mid-European trading on Monday, giving up earlier small gains. The euro was briefly supported by the result at the start of Monday’s Asian trading as it climbed to 1.1330 dollars before easing back to 1.1281 dollars. Meanwhile, ten-year Greek government bond yields fell by over 50 bps to 8.351% on the outlook of a stable government.