15082015 euro watch greek election questions

Euro Watch Greek elections: five questions

Group Economics Macro & Financial Markets Research

Nick Kounis +31 20 343 5616

21 August 2015 • • • • • •

Greece looks set for snap elections on 20 September… …reflecting that the government has lost its majority and may become less popular next year The most likely scenario is a new Syriza or Syriza-led government… …but polls are uncertain and there is a risk of an unclear outcome Outside of politics there are questions on programme implementation and size of debt relief ECB may now wait until much later in the year to include Greek bonds in its QE programme

Elections look likely on 20 September

Are there other risks?

Greek Prime Minister Alexis Tsipras resigned yesterday with

Yes. Apart from these political risks, we see more significant

the aim of triggering snap elections, with 20 September the

risks surrounding programme implementation against the

likely date. Elections are not a done deal because the

background of a very deep recession and the possibility that

opposition parties have up to 3 days to try and form a new

debt relief is too modest to restore confidence in debt

coalition government. However, new elections are very likely.

sustainability.

In this note, we assess the five big questions that arise.

May this delay ECB purchases of Greek government Why has Greece called early elections?

bonds?

The decision of Greek PM Tsipras to call early elections is no

Yes quite possibly. The ECB has said that it does not

real surprise. The Syriza-led government had not only lost its

necessarily need to wait until the first programme review in

majority, but also the minimum level necessary for a

October before extending its QE programme to Greek

functioning minority. In addition, Mr Tsipras must know that

government bonds. If the Greek government implemented

given the bad news on the economy and the tough measures

significant prior actions before then, it could be enough to

ahead, his government will only become less popular over the

convince the Governing Council. However, the elections look

next few months.

like slowing the process of implementing prior actions in the next few weeks, so we may not see ECB purchases until later

Will the elections throw the programme off course?

Our judgement at this stage is probably not. Polls put Syriza out in front. The second biggest party (New Democracy) and other smaller parties (Potami and Pasok) also support the bailout. The Left Platform group – which is splintering from Syriza to form a new party (Popular Unity) – will probably not provide real competition. So the most likely outcome at this stage is a new Syriza or Syriza-led government.

What are the risks surrounding the elections?

There is always uncertainty surrounding opinion polls and we should be cautious in interpreting them. The UK election earlier this year is a good example. So there could be unexpected outcomes. In particular, if Syriza does less well than expected, it might find it difficult to form a new coalition government. For instance, there might be a situation where it does not have the number of seats to form a coalition with Pasok/Potami and the only option is a coalition with ND, which proves difficult to negotiate. In that case there might be a minority government of some sort, which could lead to instability.

in the year.

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Greek elections: five questions – 21 August 2015

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