Risk of Greek euro exit rises after messy vote leaves no clear winner
THE CHANCES of Greece leaving the euro jumped yesterday after national elections resulted in an anti-bailout party being given a mandate to form a government.
Analysts at Citi revised upwards the probability of a Greek exit from the euro from 50 per cent to 50-75 per cent due to the growing likelihood that Greece will end up with an anti-austerity coalition or no government at all.
The “radical left”, or Syriza, party will today receive a mandate from Greece’s President to open coalition talks after the centre-right New Democracy party, which won the most votes, said its invitation to rivals to form a “unity coalition” was rejected.
The election saw Greeks split roughly fifty-fifty between parties that are in favour of Athens’ bailout and austerity package and those strongly against it. But even those parties in favour say it requires extensive renegotiation.
Parties on the extremes saw a surge in support: the extreme nationalist Golden Dawn party took 6.9 per cent of the vote, or 21 seats, while the KKE/communist party took 8.4 per cent, or 26 seats.
If no government can be formed, Greece will have to hold another vote in June, making it “very unlikely” that it can meet its bailout conditions, according to Citi. If that causes its foreign lenders to cut off its bailout cash, “the Greek sovereign and its banking sector would run out of funding [meaning] that Greece would be forced to leave the euro”. Berenberg Bank analysts agreed, saying the vote “adds to the risk that Europe could turn off the flow of support funds and… force Greece to leave the euro.”
Q and A: Greek vote: what will happen next?
Q What happened following the vote?
A The party with the biggest vote share, New Democracy (ND), won 50 bonus seats and the first shot at forming a coalition, but said it had failed to do so yesterday.
Q So what now?
A The runner-up, the self-identified “radical left” Syriza party, gets three days to form a coalition. But even with every left-wing party on board, such an alliance would only have 137 seats, and Syriza yesterday ruled out a deal with ND. The same problem applies for PASOK, the Socialists, whose negotiations with ND also broke down yesterday.
Q So what if no one can form a government?
A Another vote. The earliest it can happen is 10 June. But Greece also has to show lenders plans for savings equal to seven per cent of GDP in June to get its new bailout cash.