Greece’s year of tumult enters new chapter as Tsipras dominates

 Greek voters had the choice to reject the man who led their country closer than ever to being forced out of Europe’s single currency. Instead, they embraced him.

Alexis Tsipras and his Coalition of the Radical Left, or SYRIZA, emerged from a second election in eight months with a level of support barely diminished from the emphatic victory that catapulted him both into power and a standoff with the euro region. SYRIZA, which took 35.5 percent of the vote compared with 28.1 percent for the center-right New Democracy, will enter a coalition with the same small party that helped it rule before.

While the victory tightens Tsipras’s hold over Greek politics, it also exposes the paradoxes of a country whose economy is a shadow of its former self and where controls remain on bank withdrawals. After coming to power pledging to end austerity and restore “dignity,” Tsipras now must implement the further sharp spending cuts and tax increases he ended up agreeing to in exchange for 86 billion euros ($97 billion) of fresh European aid.

The electorate has voted to return to power a party that "ditched its promises, switched its policies, and caused the collapse of Greek banks, bringing in an unneeded recession," said Stathis Kalyvas, a professor of political science at Yale University. On the other hand, "this government will be called to implement a stringent set of fiscal and structural reforms that it vigorously rejected before," he said.

Hot summer

Greeks this summer faced some of the most harrowing moments of their six-year financial crisis as Tsipras, a former Communist Party activist, entered a game of chicken with other European leaders over their criteria for granting the new bailout, the country’s third since 2010.

Banks were closed, commerce ground to a halt, and European officials began to talk openly of Greece exiting the euro. The crisis was only resolved when Tsipras caved in to creditor demands, agreeing to a package of requirements arguably even more onerous than the one Greek voters rejected in a referendum less than two weeks earlier.

As a result of that deal, Tsipras’s power over matters of taxation, spending, and regulation will be minimal in his second stint at Maximos, the official Athens residence of the Greek prime minister. Virtually all key economic decisions have effectively been made by European finance ministers and central bankers, and any deviation risks a halt to aid payments.

“The space for brinkmanship or renegotiating the agreement is close to zero,” said Brunello Rosa, an analyst at Roubini Global Economics. An initial review by creditors of the country’s progress in implementing the program is due before the end of the year, with another in spring 2016.

Lower turnout

Beyond voter apathy, Tsipras paid almost no political price for his about-face on austerity. Turnout on Sunday at 56 percent was the lowest since at least the 1990s, and the election failed to engender the same flag-waving and car horn-honking as the other votes this year. A small crowd watched an outdoor TV screen in the central Syntagma Square in Athens on Sunday night, normally the scene of raucous celebrations.

Zoe Makrigianni, a 20-year-old student in Athens, showed up with other SYRIZA supporters to celebrate the win at a smaller square nearby.

“I expected a victory, but not by such a big margin,” Makrigianni said as she hugged friends. “We have a rescue program and we have to implement it. The question was who would do it most fairly.”

SYRIZA’s share of the ballots was about one percentage point less than what it received in January. Popular Unity, a splinter group of left-wing Syriza lawmakers who abandoned the party over the bailout deal, fell short of the 3 percent threshold to enter parliament. Those defections in August cost SYRIZA its governing majority, forcing the election.

Markets man

At the same time, the departures helped turn Tsipras into a more palatable figure for financial markets. Greek government bonds posted the biggest returns in the euro area over the past month and the country’s stock market has also rallied.

While SYRIZA’s electoral performance was better than pollsters expected, the party still fell just short of a majority of seats in the 300-member parliament. It plans to enter another coalition with the right-wing Independent Greeks party, which received 3.7 percent of the vote and 10 seats.

With an expected majority of just five seats in parliament, down from a dozen, the Syriza coalition will have little room for error.

Doing deals

If Tsipras can finally also win over European leaders and the International Monetary Fund, he may be able to strengthen the country’s financial position. SyYRIZA has long called for a writedown of Greece’s 300 billion euros of government debt, while creditors have held out the prospect only of easier repayment terms.

Such progress would go over well with hard-up Greeks, whose economy has shrunk by a quarter since 2009.

The country’s voters have shown "they want the Tsipras that makes deals with creditors," said Holger Schmieding, chief economist at Berenberg Bank in London. "They still trust Tsipras, after everything."

[Bloomberg]