Super Sunday (2) – Inconclusive in Greece

Yesterday’s Greek election delivered an inconclusive result, as many feared. With almost all votes counted, New Democracy (centre-right) has fallen to 19% of the vote from 33% three years ago and Pasok (centre-left) has crashed to third place with 13% down from 44%, behind the Syriza party (radical left), which is up to 17% from less than 5%.

On this basis, the two parties that supported the EU-IMF programme (ND and Pasok) would have 149 seats between them in the 300 member parliament, so would lack a majority to pass austerity measures required to unlock future tranches of the bailout loans. Even if they had a couple of extra seats, I’d wonder about the crisis of democratic legitimacy that an ND-Pasok coalition would engender – implementing further austerity with the backing of only 32% of voters (contrast with the 59% who voted for the UK’s two coalition parties in 2010).

A second election seems likely, but is far from certain to deliver a more pro-programme result. Indeed, if Syriza can win over around 131,000 voters out of the almost 1 million who voted for the next three anti-austerity left-wing parties (the Communist Party, Democratic Left and the fantastically-named Anti-Capitalism Left Cooperation for the Overthrow), then Syriza would overhaul ND as the first-past-the-post winner and benefit from the 50 bonus seats that the top-placed party receives – completely changing the context for the next parliament’s coalition negotiations and making a left-wing coalition much more likely.

A final note on Super Sunday. Buttonwood rightly points out that it is primarily this Greek result, rather than Francois Hollande’s win, that has riled the markets this morning. This of course isn’t to say market players are thrilled about Hollande. But we shouldn’t conflate the market implications of the Greek and French results, as some of the press coverage this morning seems to have done. The Greek election does raise serious questions about the sovereign’s solvency (even post-PSI) and perhaps the country’s euro membership.

France, though, will have merely unsettled people by promising a bit more political disagreement at a time of uncertainty when the markets are desperately seeking short-term stability. But if bond traders want stability, they should move to North Korea. My view remains that a more-balanced ‘good cop, bad cop’ dynamic between France and Germany may be a necessary condition for preserving the euro – and so the long-term outlook for the single currency may have been enhanced by the French voters’ choice.

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