Greece: Will it Spark Another Eurozone Crisis
Antonis Samaras the centre-right prime minister of Greece has called for a snap election (he brought forward an election meant for February) for a new President on December the 17th, the outcome of this election is viewed by many to be crucial to ensure stability in the Eurozone and in the European Union.
The election will be voted in parliament and Mr Samaras will have to get 180 MPs to vote for his governments’ candidate, Stavros Dimas of the New Democracy Party. This will be hard for the prime minister as he has only 155 MPs in his party and will have to rely on independent MPs to support him; it is possible but it will be a close call. If the Greek government is not able to do this they are committed to calling a general election, in which, based on opinion polls, a far left party called Syriza is very likely to win.
Syriza, led by Alexis Tsipras, has said that they are committed to staying within the Euro but have caused some concern with certain policies. Syriza plan to increase pensions and the minimum wage, have said they will not increase taxes and plan to provide free heating and electricity to impoverished Greeks. This does not seem feasible and looks likely to cause a stand-off between Athens and the IMF, ECB and European Commission. In the past Syriza have also said they would demand Greece’s debt to be written off but recently they have moderated this idea in an attempt to attract more voters.
The fear is that if Syriza gain power there may be a Cypriot-style bail-in, where the government’s debt is paid straight out of everyday depositor’s accounts. However, this would only happen if agreements are not able to be made.
Understandably markets have trembled considerably; prices on the Athens stockmarket plunged by almost 13% the day after the presidential vote was announced and yields on Greek ten-year bonds soared above 8%. Senior Syriza politicians have visited London in the past few weeks to explain their economic programme to investors and analysts’ views have been very dismissive of the party. John Paulson, a hedge fund manager who has previously invested in Greece has said “We are prepared to invest in Greece, but we need political certainty. Our investments are on hold pending the outcome of the presidential elections”. Other analysts have described the economic programme of Syriza as “total chaos” and therefore investors are not prepared to invest money in Greece until the political turmoil settles.
Calling for the snap election has been a massive political gamble on Mr Samaras’ behalf, so why did he do it? Some have called it a sign of ‘desperation’ but it is likely that he wants to use his hoped for victory to push through more and more tough reforms to allow the government to reduce its debt and stop its current bailouts. Either way people around the world will be watching the election results closely.
We will just have to hope that a ‘Grexit’ is not a present to the EU this Christmas.
Image from https://en.wikipedia.org/wiki/Antonis_Samaras