The Greek election will determine the future of the eurozone

15th June 2012

At the moment, the outcome of the election looks far from certain with a number of possible scenarios. Final exit polls will be released this evening, but in the meantime observers are left to rely on the voter opinion polls from 1 June – the last time they were allowed to be made public.

"On that date, New Democracy led with 22.7 percent, Syriza had 22 percent, while Pasok had 11.2 percent. The maximum margin of error in the survey was 2.8 percentage points."

The relative strength of the New Democracy party is the saving grace for European policymakers. The centre-right New Democracy party are in favour of austerity and remaining in the Eurozone. It was trounced at the last election by the Far Left Syriza party, but there are signs that it is enjoying resurging popularity.

The Syriza party is in favour of renegotiating Greece's treaty with Europe. The group's main pledges are listed here and include cancelling Greece's bailout and implementation laws and replace them with a national recovery plan, renegotiating the country's loan agreement and seeking a European solution to the Greek debt crisis.

This BBC piece outlines the main lines along which the parties and the people divide.

The leader of the Syriza party Alexis Tsipras has said that he is not in favour of leaving the Euro, but is optimistically relying on negotiating more favourable terms for Greece with European policymakers, a view they roundly reject. That said, some officials have suggested that there might be wiggle-room in some of targets: "The headline targets cannot be changed," one senior EU official told Reuters. "There could be some tweaks to the path to get there, but not the goals."

The options therefore seem unattractive. If the New Democracy party is elected Greece limps on as part of the Euro until such a time as leaders can effect an orderly exit or sufficient economic growth is generated to pull it out of its current hole. Or the Syriza party gets in and either immediately breaks its campaign promises by backing down on treaty renegotiation, or pulls Greece from the Euro with all the resulting disorder. There is the outside chance that Tsipras wins concessions, but he does not have a strong negotiating hand.

Perhaps the third and most likely option is no clear winner and a weak coalition without the mandate to pull the country in one direction or another. Again, this would see the Eurozone crisis simply limp on indeterminately.

The most immediate problem may be a run on the Greek banks, which has already been happening in slow motion for some time: "One euro zone official said that the main concern, if SYRIZA overwhelmingly won the election, was the risk of large capital outflows from Greece if depositors worry their savings in euros could later be frozen or converted into drachmas."It is not even about a bank run on Monday morning after the elections. People can now log on to internet banking and make transfers on Sunday evening as well," a third euro zone official said."

The banks are prepared themselves for that eventuality: "If the euro sceptics succeed, we would have to take precautionary measures at payment transactions," the German unit's CEO Theodor Weimer said Tuesday, adding that nobody wants to be the last one to send euros to Greece."

The reaction of the markets in either scenario will be difficult to gauge. Tim Guinness, energy investment specialist at Guinness Asset Managers has said that the markets may rally on a Greek exit. Others believe that they will plunge. They may be that they are so tired of instability that a strong result either way will prompt a rally.

Either way, it could be more compelling viewing that any Euro 2012 match.


More on Mindful Money:

Is Spain a 'submerging' market

Can Greece learn from the story of Indonesia in the Asian financial crisis?

Who will pick up the bill for Greece?

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