One Short of Outright Majority

With vote counting nearly over, it appears Syriza captured exactly half of the 300 member Greek parliament with approximately 36.3% of the vote compared to 27.8% for New Democracy.

That was a solid trouncing, nearly double the 4-5% expected margin (see Syriza Trounces New Democracy; Greeks Stop Paying Taxes; Run on Greek Banks Escalates; Get Out!)

Syriza is one vote short of an outright majority. However, Syriza has already secured an alliance with the Independent Greeks, a right-wing party that shares little common ground with Syriza except for its rejection of austerity measures.

The coalition would have at least 162 seats, and that’s an allegedly comfortable governing majority.

I do not rule out other alliances. But holding them all may prove difficult. Certainly this was not the alliance most expected.

Can Syriza govern with the Independent Greeks on some issues and another party on others? Or will this all blow up soon? If the latter, before or after Grexit?

For now, it’s party time for Syriza, albeit one vote short of an even bigger party. Of course, there is always the chance of a party shift. It only takes one shift.

New Clash for Europe

With that backdrop, please consider Greek Vote Sets Up New Europe Clash.

With nearly all votes counted, opposition party Syriza was on track to win about half the seats in Parliament. In the wee hours of the morning, it clinched a coalition deal with a small right-wing party also opposed to Europe’s economic policy to give the two a clear majority.

“Today the Greek people have written history,” Syriza’s young leader and likely new prime minister, Alexis Tsipras, said in his victory speech late Sunday. “The Greek people have given a clear, indisputable mandate for Greece to leave behind austerity.”

A Syriza victory marks an astonishing upset of Europe’s political order, which decades ago settled into an orthodox centrism while many in Syriza describe themselves as Marxists. It emboldens the challenges of other radical parties, from the right-wing National Front in France to the newly formed left-wing Podemos party in Spain, and it sets Greece on a collision course with Germany and its other eurozone rescuers.

Tsipras will have a mammoth task at home and abroad.

For one thing, Syriza is a broad coalition of the left that includes factions that believe Greece should leave the eurozone. Those factions would pressure Mr. Tsipras if he moves to compromise with Europe.

The pressure to compromise will be intense. Under the bailout program’s rigorous schedule, Greece is required to complete a review of its progress with the so-called troika of bailout inspectors by the end of February. Mr. Tsipras has said he doesn’t recognize the troika’s authority.

Pact With the Devil?

The Wall Street Journal called the coalition of 162 seats a “comfortable majority“. I called it an “allegedly comfortable majority“.

Time will tell which version is correct. But other alliances are possible as well.

It’s interesting this coalition is the one that emerged rather than a coalition with one of the other leftist or centrist parties.

Perhaps there is more in common on the issues than is apparent at first glance. Then again, perhaps so many are so fed up with austerity they would sign a pact with the devil to get rid of it.

Bow to Austerity or Go Bust

The Telegraph reports Greece must bow to austerity or go bust, says EU

Eurozone finance ministers will on Monday threaten an end to negotiations on debt relief for Greece unless its new radical Left government promises to honour all existing austerity agreements.

Eurozone officials are convinced that the EU holds all the trump cards in the coming clash with Greece’s leader-in-waiting, Alexis Tsipras, including the nuclear option of letting Greek banks collapse. They believe Mr Tsipras knows his weakness.

The hardline approach will be sugared with offers of flexibility on the detail of austerity measures, and a move to allow Greece more time to meet an end of February deadline for renewal of key EU loans that are keeping the country’s economy afloat.

Mr Tsipras will be reminded that unless he plays the EU game there will be no extension to a 28 February deadline for a review of Greek austerity measures by the hated “troika” of inspectors from the EU, European Central Bank and International Monetary Fund.

Nuclear Chips on Both Sides

The above sounds like a hard bargaining chip, and it is. But Tsipras would have to give up everything he has stood for to accept that stance. Also, his coalition would collapse and he would immediately be out of office. When do politicians voluntarily accept that fate?

Tsipras may easily decide he has nothing to lose.

Moreover, Tsipras has his own nuclear bargaining chip. If Greece exits the eurozone, the rest of the countries immediately become liable for Greek debt.

Revised Grexit Debt Liabilities 

On January 22, with thanks to Dr. Eric Dor, director of IESEG School of Management in Lille, I posted a Revised Greek Default Scenario that showed “Liabilities Shifted to German and French Taxpayers”.

Who is bluffing whom with Italian liabilities at 48 billion euros and Spanish liabilities at nearly 33 billion euros. See link for other countries’ liabilities.

No Solution?

Saxo Bank chief economist and CIO pinged me with this thought after the election …

  1. The Syriza position is clear: They were given mandate to “ignore austerity”.
  2. IMF and ECB stance is also clear: There are room for talks on maturity and terms but no on substance and doubts about repayment.

The EU, being the political animal it is, will look for compromises and short cuts, but end of the day this process is running out of time there are no new “pockets” to move the problem to anymore.

Greece needs a haircut. Anyone can see that. Getting it and executing it is probably the biggest single challenge. Unlike what we are trained to believe often there are no solutions to a lot of the problems we face. That’s the real conclusion on last night election result.

Actually, there is a short-term, can-kicking solution of sorts, but that would require some compromises on both sides.

Longer term, even if some writedown of debt was worked out, all of the eurozone structural problems still remain.

Finally, it’s one thing for two or three parties to work out a compromise. It’s another thing indeed for 18 parties all to agree, especially when some of them perceive they have to contribute more than everyone else.

Mike “Mish” Shedlock