Fears about an immediate Greek exit from the Euro Zone (dubbed Drachmangeddon on Twitter) may have subsided following the slim victory of pro-bailout New Democracy in Sunday’s general election, but questions about the nation’s future resurfaced on Monday.
Mr Antonis Samaras, the head of New Democracy, pledged to honour his country’s bailout commitments after winning just under 30 per cent of the vote in Sunday’s election re-run, gaining 129 seats (including the additional 50 seats given to the victor) in Greece’s 300-seat Parliament, against the 71 seats of Syriza, whose charismatic leader AlexisTsipras had pledged to force a restructuring to the financial assistance programme.
Should talks with socialist party Pasok, which won 33 seats in Parliament, and potentially Democratic Left, which won 17 seats, succeed, the New Democracy-led coalition would gain the majority that it needs.
However, initial market elation has worn off, reflecting the uncertainties that remain both about Greece’s ability to stick to its commitments, and as to whether the troika of the IMF, European Central Bank, and European Commission, will ease the terms of the bailout. “If Greece is to have any chance of reducing its deficit in a scenario where a deep recession makes further fiscal cuts unsustainable, it needs some form of debt relief,” warned BNP Paribas in a note.
While the formation of a pro-bailout coalition will put off the immediate prospect of a Greek exit “it would not alter the underlying problems in the Euro zone itself, including Spain, and the urgent need for a response from the June 28-29 European Council summit,” said HSBC analysts.
“Our probabilities for Grexit remain unchanged in the range between 50 per cent and 75 per cent over the next 12-18 months,” said analysts at Citigroup, citing Syriza’s large role in Parliament and ability to organise further protest against the austerity measures and structural reforms.
Big questions remain. To what extent will Germany be willing to compromise, and will it agree to the “European Growth Pact,” being pushed by French President Francis Hollande? And what will come of the Troika’s likely visit to Greece following the formation of a government to assess the current stage of its restructuring? As has been the case throughout the euro zone crisis, each time a hurdle has been crossed, another set of uncertainties come under the spotlight.