Will Syriza’s early moves prove a win for mainstream politics in Europe?
Paras Anand, head of European Equities at Fidelity Worldwide Investment, comments on Greece’s efforts to renegotiate its bailout.
“Most of the language in the weeks leading up to the election from Syriza and Alexis Tsipras seemed to indicate a determination to remain within the eurozone and to renegotiate the existing terms of the country’s bailout package in order to ease the short term pressure on its embattled economy.
“This was, encouragingly, accompanied by messages of continued structural reform targeting those corporates and individuals who were not contributing substantively to the country’s tax revenues. And whilst this only touched on some of the deeper challenges in putting the Greek economy onto a sound footing, it appeared a good starting point.
“It would seem that a measured reaction to the Syriza victory both from stock markets and from the European leadership on the day has arguably been misread by the incoming party as having a much stronger negotiating position than in fact they do. Events of the last days have borne this out.
“Whilst continuing to talk about reaching an agreement with key European politicians and leaders in the Troika, Syriza has at the same time been describing not a moderation but a reversal of some of the decisions taken under the terms of the existing bailout agreement such as re-hiring civil servants. Meanwhile, the finance minister’s attempts to set an elongated timetable to establish the new payment terms appear out of step with reality.
“There is an existing looming timetable of significant payments and a very real risk that rapid withdrawals from the Greek banking sector will increase its dependence on the ECB’s emergency liquidity assistance in order to prevent a full scale panic.
“This self-imposed uncertainty has led to ECB decision to cease allowing Greek government bonds to be used as collateral within the commercial banks; a decision which is not terminal (as most Greek sovereign debt is held by other European institutions and represents only one potential source of funding for the banking sector) but demonstrates that early optimism of a deal with Syriza is waning.
“Silently, mainstream parties will be encouraged. The reaction of the Greek bond and equity markets to the early moves by Syriza are a clear reflection of the severity of the situation and highlight the fact that the European leadership are much more sanguine about a Grexit today than they were a few years ago.
“Whilst it is hard to predict how the next weeks and months will play out, it seems likely that either Syriza will have to accede to an ongoing programme of reform or will have to risk leaving the single currency. This will strengthen the perception that populism is at its most impactful in opposition and will reawaken voters across Europe to that fact that, not only are there few easy economic fixes but serious downsides to brinkmanship exist. On current form, Syriza may be strengthening the appeal of the better known devils.”