SYRIZA is now ready to form a government, after receiving the required 150 plus seats in Parliament with the on boarding of the vocal right, Independent Greeks party.
Panos Kammenos, the Independent Greeks leader, said after his meeting with SYRIZA leader Alexis Tsipras,
“I want to say, simply, that from this moment, there is a government. The aim for all Greeks is to embark on a new day, with full sovereignty,”
The new Greek prime minister will now meet with the country’s president and later announce his cabinet. The the fun really begins.
So in a parliament in which the nationalist Golden Dawn placed third, the new leadership will be comprised of a far left and a far right group, both united by the hatred of European bailouts and the stifling Greek economy, both of which they are eager to blame on Germany and the Troika.
And while bankers across Europe were fast to talk down the possibility of a hardline Syriza, having failed to get those two elusive seats, the fact that it has aligned itself with a just as rabid anti-Europe party will actually end up forcing Tsipras hand to deliver on at least some of his anti-bailout, anti-Troika, promises, all of which Germany has shot down apriori.
So what happens next?
Well, on one hand, as RBS’ Greg Gibbs points out, the ECB’s just announced QE “substantially” increases the incentive for Greece to stay in an acceptable EU/IMF austerity program as a decline in EUR and regional bond yields provide a draw for the country. He adds to expect a lot of “bluff and bluster” from both sides of the Greek debate in 1H2015 especially since EU members will concede little ground to Syriza-led Greek government. The problem is that Syriza can hardly agree to no concessions as it has built reputation on easing austerity.
This leads Gibbs to conclude that the most likely outcome is just enough ground conceded on both sides to save face.
Immediate focus likely to be troika review expected end-March; most important deadlines expected when Greece faces repayment pressure on large amount of bonds in July/Aug.
The take of Morgan Stanley’s Hans Redeker is less optimistic: he, alongside other fx strategists, thinks that the Greek election outcome don’t bode well for the Euro, adding overnight that investors will watch which party Syriza reaches out to. We now know that said party is the a rightwing anti-bailout organization, which weaknes the compromise angle.
MS says to expect a modest core European opposition against Greek debt restructuring as no doubt current debt levels are unsustainable.
Friction with EU partners will probably be on reforms as Syriza has not only called for the end to austerity, but wants to roll back some structural reforms and re-hire in public sector.
The conclusion: it will be up to the German government to “make a difficult decision.”