Sunday, January 25, 2015

Greece's Leftist Syriza Just Shy of Absolute Majority

Greek elections were held today, and the leftist Syriza party emerged the clear victors, taking 149 seats in the 300 seat Parliament.  Despite the solid win, they fell just short of an outright majority.  Party leader Alexis Tsipras hailed his victory as an end to the "vicious cycle of austerity," although Tsipras significantly toned down the anti-austerity rhetoric as the election drew near.

Tsipras now finds himself in a precarious position, balanced between his anti-euro political base, and the reality of Greek creditors trying to fend off a default on their massive debt.  Whether or not Greece remains in the Eurozone is now a matter of debate, although in recent weeks, both Tsipras and German Chancellor Merkel have insisted that Greece should remain.  A Greek exit would be destabilizing at best, not only for Greece, but for the Eurozone as a whole.  To be sure, Italy and Spain will be keeping a close eye on Greece's decision.

Uncertainty in Greece has left financial markets unsettled several times in the past few years, and with the shift in the balance of power today, there's definitely an element of uncertainty heading into tomorrow's open. The outcome of today's election has been heralded in the polls for several months, but the moderation of Tsipras' anti-euro public sentiments can be seen as an indication that he is transitioning away from the political rhetoric needed to win and towards the reality of what it will take to lead.  That may help impose a measure of stability as we wait and see how the new government takes shape.

What also remains to be seen is how the political landscape, and not just the economic landscape, develops with Syriza in power.  They have publicly supported a Greek exit from NATO, and - not surprisingly - have criticized economic sanctions against Russia.  As is the case with their anti-eurozone rhetoric, however, Tsipras has backed away from the extreme anti-NATO views in recent weeks.  As Bloomberg stated, "Syriza is sacrificing its more revolutionary ambitions to the overriding goal of getting better terms for Greece’s economic aid package."

It will now be interesting to watch the market dynamics.  Last week, we had a huge adrenaline boost on Thursday with the ECB's announcement of Quantitative Easing measures that far surpassed expectations.  The adrenaline high wore off on Friday, though, as earnings reports in the US were mostly lackluster.  Now we have the Greek elections upon which to focus tomorrow.  Between the Greek elections and several important economic announcements in Europe tomorrow, including the Eurogroup Meeting, three IFO announcements, and December's Retail Sales report, Monday should be an interesting - and possibly quite volatile - trading day overseas.  It will be interesting to see how this spills over into the US market, heading into some key domestic releases mid-week.

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