For months on end, all anyone could talk about was Greece. Throughout the spring and summer, the country’s fate in the eurozone was considered the main risk to global markets if not for what the financial fallout from a Grexit would be (that risk was largely confined to the public sector), then for what a Grexit would mean for the future of Europe’s fragile currency union.
Then, a funny thing happened. Everyone forgot about Greece.
On the heels of a final, dramatic showdown in Brussels that pitted PM Alexis Tsipras (who came in wielding a referendum “no” vote from his people) against German Finance Minister Wolfgang Schaeuble and saw Greece finally capitulate after a weekend of “mental waterboarding,” the world seemingly accepted the fact that Athens will remain a debt serf for decades to come, and although the issues of debt relief and bank recapitalization remain contentious, it seems that a Greek exit is no longer on the table.
Late in August, Tsipras resigned, setting in motion a series of events which would lead to snap elections. Again, the news was greeted with little fanfare as, by that point, the market had turned its attention to China, its currency, its stock market, its economy, and how it would all factor into the Fed decision in September.
Well, as we head into the weekend (liftoff-less, still), it’s worth noting that Greece is having an election on Sunday, and although the outcome is unlikely to change the course of the bailout deal, black swans wouldn’t be black swans if they were easy to spot ahead of time and if the first half of the year taught us anything, it’s that “inconsequential” things like Greek politics actually do matter for markets, and it’s with those two considerations in mind, that we present Bloomberg’s four scenarios for the Greek election outcome.
* * *
From Bloomberg [12]
Scenario 1: Moderate Coalition Government
The two (alternate) poll leaders Syriza and New Democracy are unlikely to win with an absolute majority. Our baseline scenario therefore is a new round of coalition patch-working to start as soon as next week and result in a moderate center-left or center-right coalition. The victorious party will win a 50-seat bonus and be given the mandate by President Prokopis Pavlopoulos to form a coalition. If Syriza comes first, it will probably turn to smaller, centrist parties such as Pasok and/or To Potami to build a "progressive" coalition — as Tsipras put it during the campaign. In the case of a New Democracy victory, the party would also go hunting among the same smaller parties for allies. The quick formation of a new government would enable the legislative business to restart and get the ball rolling on the required reforms ahead of the next bailout program review — currently scheduled for October.
Scenario 2: Grand Coalition
If coalition talks with small parties fail to bring a solid majority, the two main parties could reach out to each other. New Democracy new leader Vangelis Meimarakis already said he could work with Syriza. By contrast, Tsipras ruled that prospect out — but he has shown some unexpected pragmatic skills lately. We see a grand coalition between two ideologically different parties becoming a reality only as a last resort. Both parties do want to respect the bailout program commitments, but they have opposite views on pretty much everything else. The collaboration would therefore be quite unstable and short-lived in our opinion. Furthermore, in this scenario the main opposition party could end up being the third-polling Golden Dawn, a neo-Nazi party. Not the kind of constructive opposition you’d wish in a democracy.
Scenario 3: New New Elections
The elections could result in an overly fragmented Parliament and unsuccessful coalition talks. That would be a remake of 2012. Back then, the May general elections resulted in a deadlocked political situation leading to new elections he month after and the eventual formation of a coalition led by Antonis Samaras. In this scenario, Greece would lose at least another month marked by political uncertainty before the organization of yet more elections. The implementation of the program would fall behind schedule and some creditors could lose patience and trust — two virtues which are not trending particularly high right now.
Scenario 4: Absolute Majority
One party reaching an absolute majority is the least likely scenario, but arguably the best one for the implementation of the bailout program and the stability of the euro area. A single-party government would have a longer life expectancy than any coalition, potentially able to serve a full term mandate of four years. That would cover the entire program period until 2018. Yet this scenario remains the least probable given the state of public opinion. Both Syriza and New Democracy have been polling around 25 percent. That’s far from Syriza’s victorious score of 36.3 percent in January which fell short of absolute majority by only one seat.
* * *
For his part, Tsipras is confident that despite polls that show Syriza running neck and neck with New Democracy, when it comes time for Greeks to cast their ballots, he we prevail. "There is a voting body that is below the radar, it is not being traced," he told told Greece's ANT 1 television.
As for New Democracy leader Vengelis Meimarakis, he’s looking to capitalize on what he hopes are public doubts about Tsipras after the former PM sold out the referendum “no” vote in Brussels. “The question is clear. Should we listen to false promises and wishful thinking, or move forward responsibly and with a national plan? It's high time we did away with incompetence. The Syriza experiment ends on Sunday."
The unfortunate reality here is that the Syriza vision that resonated so well with voters in January has, in the space of just nine months, been relegated to the realm of "wishful thinking" and as should be clear from the above, even if Tsipras wins, this is not the Tsipras who swept to power earlier this year and this version of Syriza has been watered down in the wake of the split which saw Panagiotis Lafazanis form his own, break away party last month.
In short, the IMF, Berlin, and Brussels got what they wanted - even if the fight was perhaps more difficult than they had imagined. Democracy has been undermined in Greece by the purse string and although Europe's methods were more subtle than say, Turkey's, the outcome is the same: a democratic election result that was seen as undesirable by those who ultimately control Europe was nullified and the will of the Greek people has been subverted.
Now, Greeks find themselves going to the polls facing a situation that will be familiar to many American voters - a choice between two parties that claim to be diametrically opposed, but who are actually all too similar.
* * *
From Deutsche Bank
One event which has somewhat flown under the radar is Greece’s general election this Sunday. The recent polls have been too close to call, with fairly evenly split support for Syriza and New Democracy although neither is likely to control a majority in parliament. The successful conclusion of the 3rd ESM package and broad-based political support to meet creditors’ demands eliminated a lot of the political risk however and as DB’s George Saravelos pointed out previously the eventual outcome of the vote may not entail particularly different paths ahead. The bigger picture is the popular support towards underlying Eurozone membership as the key underlying factor behind ensuring that Greece’s path towards stabilization is in place.
From Citi
Sunday's election should show political system remains fragmented and uncertain. Five new polls released since yesterday suggest that uncertainty around the outcome of Sunday’s election remains as high as ever. Three polls (from Alco, Metron Analysis and Pulse pollsters) see the two main parties, New Democracy and Syriza, with almost exactly the same share of votes (27.4% vs 27%, 31.6% vs 31.9%, and both even at 29%, respectively for the three pollsters). Another poll by the Interview shows a ND lead at 32.8% vs. 30.6% for Syriza. An E-voice poll instead puts Syriza at 32.6% and ND at 28.5%. Comment: recent polls suggest that ND has increased its support and closed the gap with Syriza, but probably not enough to win the election, and most importantly to win a parliamentary majority. A Syriza win remains our base-case scenario, with a coalition with smaller centre-left parties likely to be necessary to form the next government. However, whichever party wins Sunday’s election, it will probably take a while for the next government to be formed and it is likely to be a fragile one. This would make it difficult to implement quickly the Memorandum requests necessary to get additional financial help and, crucially, to recapitalize Greek lenders. We believe that Greece’s position within the Eurozone could come into question again within the next few months.
From Nomura (via Bloomberg [13])
A bad outcome would be a highly fragmented parliament, with Syriza and New Democracy getting very low shares of the vote, in which case more parties will be needed to form a government. A disastrous scenario would see Golden Dawn, and the anti-European parties getting a really high share of the vote. But that’s just a tail risk and it’s highly unlikely to happen. Even a bad scenario will probably be good-enough for investors in the grand scheme of things.
