With any possible majority likely to be quite weak, and about two weeks to go, the outcome of this second election remains highly uncertain. While we're happy to leave the ever-changing chances of all the possible government combinations to the Greek political commentators (or media pollsters asking 1000 people), we think that the chances of a pro-bailout majority in parliament – at least for a short while – are slightly less than even at best. Morgan Stanley recently opined on the four possibilities with all centered on Syriza's actions.
How Do The Greek Polls Work?
The 300-seat parliament is elected every four years. The so-called reinforced proportional system gives the first party a higher share of parliamentary seats than its actual share of votes. For the first time, the May 6 election saw the application of a recent amendment to the electoral law, such that 50 seats in parliament (rather than 40 as before) were allocated to the first party (centre-right New Democracy, ND). Another 12 seats were allocated on a national level (the so-called statewide deputies), while the remaining 238 seats were filled in eight single and 48 multi-member constituencies. To participate in the allocation of seats, or enter parliament, a political party had to receive at least 3% of the valid votes cast nationwide. The election in June will follow the same mechanism.
And What Are The Possible Outcomes:
- SYRIZA forms a government with other far-left parties. While probably the most negative, as it would increase the probability of a Greek exit in the near term, we think that such a scenario is unlikely – given that relations between SYRIZA and other far-left parties appear poor, and that the numbers to form a government don’t seem to be there, based on current polls.
- SYRIZA joins a centrist government and drops its demands. This would be a more positive outcome, even though we suspect that investors would doubt that such a coalition could last for quite a while. We believe that such a scenario is highly unlikely, because SYRIZA’s popularity and support depend on its anti-bailout stance.
- Technocratic government. This could be a workable solution for little while, and a positive one in the near term – given that compliance with the Troika’s demands could be restored – but we suspect that investors might stay sceptical, as in this case too the longevity of such an arrangement will depend on SYRIZA’s support. As such, we think that it’s just a little more likely than the previous two scenarios.
- ND and PASOK, perhaps with some support from one or two smaller parties, form a government. We think that chances are perhaps close to or a bit below 50% at this stage, and the dispersion of the various outcomes is quite wide. Yet, despite the still-low probability, we believe that this is the most likely and positive scenario and would ensure, at least for some time, that Greece attempts again to comply with the fiscal and reform programme and stay in the monetary union.
Regardless of the final outcome, the probabilities of which are likely to change wildly over the next few weeks, we believe it is likely that, just as with the previous election, there will be several iterations (maximum allowed is three of three days each) from various party leaders to form a government, and perhaps one final iteration from the Greek President of the Republic. Thus, uncertainty is likely to stay high until the end of June.
Source: Morgan Stanley