What was meant to be a very close election on 20 September ended up in a clear success for former Greek Prime Minister Alexi Tsipras. His leftist SYRIZA party gathered 35.5% of the votes versus 28.1% gained by the center-right New Democracy party. The relatively high consensus gained by SYRIZA means that it can form a small coalition government once again and join forces with prior right-wing austerity-skeptic coalition partner, Independent Greeks. Together, both parties command 155 out of 300 seats in Parliament.
While the absence of more moderate forces in the coalition is seen by some as a source of concern when it comes to program implementation, we would only partially share such concerns. SYRIZA has softened its positions significantly since the start of 2015: Mr. Tsipras campaigned on a clear pro-Europe, pro-memorandum platform before this snap election, in contrast to his anti-memorandum rhetoric ahead of the January 2015 election. Importantly, the more extreme wing of SYRIZA (led by ex-energy minister Panagiotis Lafazanis) splintered away from the party this summer to form Popular Unity, an anti-euro movement which ended up not making it into Parliament.
Armed with a mandate to implement the program, Mr. Tsipras is likely to take a cooperative approach with Europe, in our view, and successfully complete the first program review before year-end. At this point, there is a good chance that Europe offers Greece some concessions on official sector debt relief, that the International Monetary Fund comes back into the program on a funding rather than just a supervisory basis, and that Greek government bonds become eligible for the European Central Bank’s quantitative easing program.
Questions remain over the ability of the Greek economy to return to growth and to adopt a sustainable financial and public-sector model over the medium term. In our view, however, such risks may take a while to materialize. We would not expect flare-ups in the Greek crisis anytime soon as Europe will likely view any program slippages as due to weak economic conditions rather than a lack of trying.
The road ahead for Greek sovereign debt securities remains bumpy – but we are sanguine about the outlook for 2016. From a global markets’ perspective, we do not expect Greece to rock the boat any time soon.