Economists have sought to reassure jittery investors that last week’s victory for Syriza in Greece’s elections will be unlikely to lead to the country leaving the eurozone.
Syriza vowed during its campaign that it would fight the austerity imposed on the country by the ‘troika’ of the European Union (EU), the International Monetary Fund and the European Central Bank (ECB).
The party intends to renegotiate Greece’s huge debt burden, which has led to investors fearing that if a compromise cannot be reached, Greece could leave the eurozone, sparking contagion across the region.
The tension has evoked memories of the eurozone crisis in 2011, when fears that Greece could default and leave the single-currency region sparked declines in equity markets across the globe.
But Neil Williams, group chief economist at Hermes Investment Management, said Greece would remain in the common currency largely due to quantitative easing (QE), announced in January by ECB president Mario Draghi.
Aviva Investors’ senior economist Stewart Robertson said compromise was likely, if only in handing Syriza enough to claim “they had delivered on less austerity, but not enough to be an obvious cave-in and a dangerous example to others”.
Meanwhile, Stefan Rondorf, strategist at Allianz Global Investors, said Greece leaving the eurozone was “highly unlikely because this would make the country a pariah on the international markets and close off funding from the IMF and the EU”.
That Alexis Tsipras’s anti-austerity party won by such a comfortable margin, enabling him to form a coalition with only the small right-wing Independent Greeks party, will bolster his confidence and give him a strong mandate to negotiate aggressively over the terms of his sovereign-lending facility.
But Mr Robertson said although a coalition with the Independent Greeks would not be very “market friendly”, many of the reported risks had been overblown.
He said: “A Greek exit is more likely than before [last] weekend but [the chance is] still very low – between 5 and 10 per cent.
“The ECB wants to keep Greece in, as do most euro members, and the Greeks also want to stay in. There will be lots of posturing and sabre-rattling but [Syriza] now have to negotiate with the troika, and that is what they will do.”
However, Mr Tsipras’s decision to forge a coalition with another anti-austerity party – regardless of being at the opposite end of the political spectrum – is worrying, according to Steven Bell, F&C Investments’ chief economist.
“That does make the situation worrying and we can see that from the fact that the market has weakened,” he said.
Mr Bell added: “There are really two things we are looking for: whether the troika is to be invited back to Athens and whether the suggestion that the negotiations on the bailout, already been extended to February, will be extended further.
“I doubt either of those will happen immediately but those are two things that people will be looking for.”