Greek Election Results: Syriza Win Could Spell Doom For Greece and the Euro Zone

Impact

So after last month’s election stalemate, Greece is slated for another round of elections on Sunday. The European Union and indeed global markets are sitting on pins and needles waiting to see what these results will produce. If radical Syriza leader Alexis Tsipras gets a majority of the vote and is able to form a far left coalition in Greece, things could go real south, real fast for a lot of people.

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Here’s a play-by-play analysis of how things could pan out after the election:

The only way there’s even going to be a different election result from what the May election produced is if more voters end up voting for mainstream parties instead of fringe parties like the Communists and the neo-Nazi Golden Dawn. The fundamental problem with last month’s result was that it cut up parliamentary seats among seven different parties in such a way that no like-minded coalition majority could be formed. So for the clear majority of Greeks who wish to stay in the euro zone, government officials are hoping that all the recent talk of a Greek exit from the euro zone might scare enough voters to vote for the mainstream parties this time around.

That also presents another contradictory challenge for any coalition government that forms: although the Greeks reject austerity, recent opinion polls show that 8 out of 10 Greeks want to stay in the euro zone. In other words, the public wants the benefits of euro zone membership but refuses to pay the costs that it entails.

Now if the center right New Democracy wins a majority of votes, and has enough seats to form a majority coalition with either the far right Popular Orthodox Rally and/or the Independent Greeks, international concerns will cool down for a while. The New Democracy is pro-EU and has committed to stick to the terms of the bailout, although they may have to be renegotiated (more on that later).

But if Syriza wins a majority and successfully secures a far left coalition government with either the Socialists, Communists, and/or other radical leftists, there could be trouble. Tsipras (a former communist himself) is going so far as to call for not only ending the bailout deal but for the nationalization of all Greek banks, the restoration of all salaries and pensions to their previous higher levels, and bringing back collective bargaining rights. He essentially wants to restore everything that bankrupted Greece in the first place and global markets are reacting accordingly.

Assuming Tsipras does get that far, it’ll then be up to Germany to make the next call. As of now, whatever coalition government forms after the election (if any) has to cut another €11.5 billion from the federal budget by the end of June to get the next increment of bailout cash or else Greece’s banks risk default again. The last thing Tsipras is going to do if he becomes the next prime minister is any more spending cuts. He’s going to call Germany’s bluff. It’ll then by up to Germany to decide whether to give the bailout cash to Greece anyway, thereby losing all credibility, or finally cut its losses and let Greece’s banks default.

The EU is now opening up to renegotiating the terms of the rescue agreement. They’re concerned that the austerity measures imposed by the current agreement could spark a disorderly Greek default at a time when several other Eurozone economies are increasingly fragile. The PIIGS (Portugal, Ireland, Italy, Greece, Spain) have definitely not fully recovered from the financial crisis yet, with Spain most recently becoming the fourth of those countries to ask for a bailout. If Italy ends up needing one too – game over. There’s no way the EU would be able to scrounge up enough money to rescue its third largest economy, and Italian banks are exposed to Greek debt and possible default.

So what happens in Greece is obviously not going to stay in Greece. The global ramifications of the next Greek election are real and far-reaching, potentially even affecting the 2012 U.S. election. But the lesson to take in all this is that decades of reckless spending, cradle to grave entitlements, and living beyond your means will blow up your economy to unsustainable levels of debt at which point you will be at the mercy of your creditors.

We’re not far behind our Mediterranean counterparts on the path of out-of-control spending levels and national debt. And if you think China, our creditor, calling the shots around here sounds ludicrous, ask the Greeks if they could have ever predicted the crisis they find themselves in today just 5 years ago.