On 25 January the Greeks held elections that will undoubtably have an impact on the EU and the fate of the Euro. The exit polls have announced that Syriza (the Greek acronym), also known as The Coalition of the Radical Left, won between 36-38% of the total vote, and the current ruling party, the New Democracy party, only garnering between 26-28%. If the exit polls are correct Syriza could hold between 148 and 154 parliamentary seats, they need 151 to hold a clear majority.
So the real question is what does the newly elected Syriza party mean for the Euro? If Syriza does indeed have the majority, this will give party leader Alexis Tsipras a mandate to address Greece’s program of austerity imposed in return for pledges of 240 billion euros in aid since May 2010. Tsipras is faced with the challenge of balancing his election promise of a write down of Greek debt, while also avoiding an exit from the Euro. With Syriza in power, the Greeks most certainly voiced their opinion against austerity polices.
Syriza says that Greece’s 322 billion euro public debt is not sustainable and that the target set by creditors such as the European Commission, the IMF, and the ECB is unattainable. Their plan for Greece is to implement a “nonnegotiable” social spending program which is said to cost about 11.5 billion euros which will be financed from funds from inside the country. According to the Syriza’s head of economic policy the program will not require additional borrowing. This program includes “subsidized electricity and food stamps for 300,000 Greek households living below the poverty line, free health care for unemployed Greeks, subsidized transport and a Christmas bonus on pensions below 700 euros a month.” They say they will achieve this after a debt write down which implies that Greece will not need to sustain such a high primary budget surplus.
The outcome is less than desirable for their German counterparts who warned against abandoning the specified bail-out program. The Syriza party is calling for extensive debt restructuring, which will undoubtably come at the expense of the Germans. The confusion and uncertainty is likely to blame for the recent fall in the value of the Euro. Many are skeptical that QE is the answer to Europe’s problems and with the emergence of Syriza and a possible debt restricting, the Euro is reflecting these risky times. The following quote is from a Financial Times article, “The Eurozone: A Stained Bond” by a senior MP for Angela Merkel’s CDU: At this time [Ms. Merkel] is more skeptical. My impression is that she has some doubts about whether QE will work.”
Syriza says they are fully committed to keeping Greece in the Euro. However, the also fully reject the austerity measures they say are imposed by Germany and is in continual support of the ECB buying sovereign bonds. A Bloomberg article explains that Syriza “wants a euro-region accord on public debt, similar to the London Debt Agreement of 1953, in which it was agreed to write off 50 percent of some of Germany’s external borrowing”. Party leader Tsipras said in a speech in December 2014, “while generosity was extended to Germany, Germany refuses to extend the same generosity.”
This issue is likely to grow into a much larger problem as European Union officials say that Greece is not allowed to stay in the euro if it fails to meet its bailout commitments.