Big Problems for Greece? Syriza and the Global Market Turmoil

In a dramatic turn of events, radical left-wing party Syriza stormed into victory in the Greek elections on Sunday night, intensifying fears that the financially ruined country could default on its debts and be forced to abandon the euro. The historic triumph is likely to trigger serious fears about the future of the European Union after Syriza swept to power to become Europe’s first anti-austerity party, almost certainly putting Greece on a collision course with international creditors. We’ve got the latest information for you in this blog post, so keep on reading!

Who is the party leader?

The leader of the Syriza party is Alexis Tsipras, who is now the country’s youngest prime minister in 150 years, after taking 36% of the vote compared with 28% for the conservative New Democracy party of incumbent Prime Minister Antonis Samaras.

What immediate effects did the cause?

The results immediately hit the euro with the single currency falling to a fresh 11-year low of $1.1098, having already taken a hammering last week after the European Central Bank announced a bigger-than-expected €1.1 trillion stimulus programme. It has since clawed back some of the losses, currently trading at around $1.1233 at around 8am in London.

One immediate cause for concern was Syriza’s announcement of the party wanting to renegotiate the terms of Greece’s €240bn bailout deal with the EU and International Monetary Fund five years ago, which failed to win a majority. While Greek debt, at 175% of gross domestic product (GDP), remains at unsustainable levels, any debt relief will be met with fierce opposition from northern states, including Germany and Finland.

What is the chance of a ‘Grexit’?

It all looks like quite an impasse and Greece's future in the euro is not guaranteed, even though German Chancellor Angela Merkel has said she wants the country to remain "part of our story".

What would happen if Greece left the Euro?

The Greek Economy – The first place to feel the full force of a Greek exit from the euro is the country itself. Greece's banks would face collapse as the value of the re-introduced drachma will plunge and Greeks rapidly withdraw their savings.

Currency – If Greece does exit the euro, a new drachma currency will have to be formed by the new government. The new administration would have to produce enough new notes to replace those currently in use in Greece. It is likely the government would impose some form of capital control in the early days of launching a new drachma, limiting the amount people can withdraw to avoid a massive run on banks.

Public Finances – The borrowing costs for governments across the eurozone are likely to soar if Greece exits the euro. This is because the move will set a precedent that such an exit is actually possible and will therefore rattle investors' confidence in other eurozone countries.

Politics and Society – Riots have frequently hit the streets of Athens in the past few years as anger over strict austerity measures demanded for the country escalates. The economic turmoil faced by the country - if it remains in the single currency or not - is likely to provoke further protests in the months or years ahead.

Exports and Tourism – As the euro and the new drachma would likely devalue rapidly, one benefit from such an event would be the positive effect on both eurozone and Greek exports and tourism. The weak value of the euro and drachma would make both more appealing to the rest of the world, boosting trade and attracting more holidaymakers.

There you have it! We’ll be closely monitoring this new topic and would be interested to know what your thoughts are. Do you think the ‘Grexit’ is inevitable and to happen soon? We’ll keep you up to date with posts as this develops.