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Tricky Tyche

15 Dec 2014 By Hugo Dixon

Greece is still several steps from chaos. Athens has entered a period of political instability, which could lead to an election won by Syriza. This radical left group’s policies might prompt Greece’s exit from the euro if fully implemented. But for this to happen, a series of unfortunate circumstances have to occur.

First, parliament must fail to elect a new president. That could happen. A president needs the support of 60 percent of members of parliament (MPs) and the government can only count on just over 50 percent to support its candidate.

However, there is a slim chance that Antonis Samaras can persuade enough MPs to switch sides to cross the threshold. There is also a small chance that the conservative prime minister himself will be replaced by a technocrat as the price for cobbling together the majority needed to elect a president.

In either case, Athens could resume negotiations with the so-called troika – the European Commission, the European Central Bank and the International Monetary Fund – about future financial support. Greece would have to agree to tighten its 2015 budget a bit, continue with structural reforms and accept monitoring of its economic actions. It would be easier to accept these conditions after a successful presidential election.

In return, Athens would receive a final dollop of cash from its current bailout programme and a precautionary credit line from the euro zone’s bailout fund. It might also get longer to repay the money it has borrowed from the euro zone. With all this in place, Greece could tap the bond markets to fund itself.

However, the government will probably not be able to secure the election of a president. Although the post is largely ceremonial, the constitution says there would then have to be a general election.

If Samaras won that poll, which would be held around the end of January, he could then continue negotiations with the troika. He would seek to scare voters into backing him by painting a lurid picture of what a Syriza government would do.

But it is unlikely Samaras will succeed. Alexis Tsipras, the Syriza boss, has a solid lead in the polls. He has the best chance of emerging with the largest party.

If Syriza could implement its programme, Greece’s prospects would be bleak. Among its populist proposals are plans to write-off a chunk of the government’s debt and expand public spending. Both ideas would provoke a confrontation with the troika that would put Athens on a fast-track to bankruptcy.

While the euro zone might be prepared, as part of a negotiation, to vary the terms of Greece’s borrowings, it would not accept a write-off, or looser terms on Athens’ budget. Tsipras would not be able to blackmail the euro zone as a Greek bankruptcy would not trigger domino defaults elsewhere.

Without a deal with the troika, Athens would not be able to access the bond market. A run on the banks is then possible, followed by capital controls. If Tsipras still didn’t change tack, Grexit would loom.

The good news, though, is that the chances this particular scenario will unfold are slim. One reason is that Syriza might well buckle when it sees the troika remains inflexible.

Another reason is that, even if Syriza was the largest party after a general election, it is unlikely to have an overall majority. To form a government, it would probably need support from one or both of two centre-left parties: To Potami or Pasok. Both are pro-European, and wouldn’t agree to sign up to a programme that involved charging over the precipice.

Indeed, Syriza might struggle to form a government at all, as the compromises it would need to make to win over these other parties would be hard to sell to its radical wing.

In such a scenario, a second election would have to be called. The conservatives might then make a comeback – especially if they ditched the unpopular Samaras and replaced him with somebody like Kyriakos Mitsotakis, a younger, more centrist leader, who would then form a coalition with To Potami.

Such a scenario might actually be the best outcome. Samaras is preferable to Tsipras but he has been an erratic leader. His most recent error was to promise that Athens would exit its bailout programme – a move that frightened the markets and so made it impossible to secure a clean exit. This was a home goal, just as Greece was finally turning the corner after its terrible recession.

Another Samaras mistake was to close down the state-owned broadcaster last year without telling one of his coalition partners. That lost him a chunk of MPs and, with them, probably the chance to secure the election of the new president.

The Ancient Greeks believed in Tyche, the goddess of luck. Sometimes she brought good luck; sometimes bad luck.

Tyche is stalking her homeland again. Political risk has shot up. The various scenarios and sub-scenarios have multiplied. One of these – a Syriza government implementing its populist policies – would, indeed, spell disaster. But it is not the most likely outcome. And other scenarios are more benign.



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