The Greek Election and its Impact on Europe’s Economy

The far-left Syriza party and its young leader Alexis Tsipras had been expected to finish on top in Greece’s early parliamentary elections, but the scale of the relatively-new party’s victory highlights the strong desire of many Greeks to bring an end to the austerity measures that have been impose on Greece by its international creditors.  Moreover, this election showed that, despite the recent return to growth of the Greek economy, most Greeks have suffered tremendously from the economic crisis that has resulted in the Greek economy shrinking by more than 25% over the past six years.  Now, Greece’s radical new coalition government will be faced with the challenge of accelerating Greece’s economic recovery while meeting the expectations of its supporters.

In the weeks before Greece’s parliamentary election, the anti-austerity Syriza party surged in terms of support and this was evidenced by the 36.3% of the vote that the party won in these elections, a one-third increase in the share of the vote that it won in the country’s last parliamentary elections in 2012.  In contrast, the governing center-right New Democracy party won just 27.8% of the vote, a little less than in 2012.  Meanwhile, the traditionally dominant party on Greece’s political left, PASOK, won just 4.7% of the vote, the worst performance in the party’s history and one that calls into question the future of the party.  Finally, the far-right Golden Dawn party maintained its share of support and is now the third largest party in the Greek parliament. 

With the 50-seat bonus that goes with finishing in first place, Syriza managed to just miss an outright majority in the Greek parliament and now holds 149 of the 300 seats in the parliament.  This led to the party quickly forming a coalition with the right-wing Independent Greeks party that won 13 seats in the parliament.  While Syria and the Independent Greeks do not share many of the same policies, they are both committed to bringing an end to the austerity measures that have been imposed on Greece by the International Monetary Fund (IMF) and the European Union.  Immediately after forming a government with Mr. Tsipras as the new Greek prime minister, the coalition government moved to halt the privatization of the port of Piraeus, a move vigorously opposition by Greece’s creditors.  In order to appease their supporters, the government is likely to make other such moves in the coming weeks, putting them in conflict with the IMF and the EU.

Greece’s new government is clearly on a collision course with the dominant economy in the Eurozone (and the champion of the austerity measures implemented in the wake of Europe’s financial crisis), Germany.  A number of German government officials have already issued warnings to the new Greek government that Germany is now prepared to accept a Greek withdrawal from the Eurozone.  However, Prime Minister Tsipras and his government are likely to find allies in France and Italy, where center-left governments have also called for the austerity measures in place in the Eurozone be brought to an end in order to boost the stagnant Eurozone economy.  As such, while Greece may be a small economy, it is continuing to exercise an outsized influence on European politics and economics and its new role may be to expose the widening divisions within the Eurozone.