Greece: Odds of Government Collapse and Early Elections

Published on December 10, 2014

Greek markets plunged yesterday on the announcement that Prime Minister Antonis Samaras had decided to move the date for the parliamentary votes for a new President to replace the outgoing Karolos Papoulias forward, from February of next year to December 17, with the critical final ballot slated for December 29.

The sell-off, the sharpest for Greek equities in over a quarter century, was fueled by fears that a failure to clear the 180 vote hurdle out of 300 seats in Parliament needed to elect a new President would by law trigger general elections within 31 days, most probably either on January 25 or February 1.

And that, in turn, could usher in a government led by the anti-austerity, far-left Syriza party, which has held a consistent lead over Samaras’ center-right New Democracy in every single recent poll.

*** The result of the Presidential ballot is widely seen as far too uncertain and close to call, but we believe the likelihood now is that Samaras will not be able to win enough votes from uncommitted delegates to clear the 180 vote threshold needed to get his presidential candidate Stavros Dimas elected on December 29. We believe those efforts will fail even with the last minute agreement from the EU to a short-term extension of Greece’s program through February as requested by Samaras. That failure will trigger the fall of his coalition government, and the early elections feared by markets. ***

*** Samaras remains focused on winning the Presidential ballot nevertheless and avoiding elections altogether until 2016, but it is looking difficult, and he is unlikely to replace Dimas with an alternative candidate as speculated by markets in a last minute attempt to avoid a failed vote and early elections. A candidate switch seen to be carried out under desperation might be futile anyway, and could even backfire in an election campaign, and his New Democracy and other parties have, from what we understand, already started preparations for imminent elections. ***

*** Early elections will have major implications for Greece, but perhaps least appreciated by markets, the prospect of a rise of a Syriza government in Greece that demands a restructuring of existing loans could also throw a major curve ball into the public debate over a potential upcoming and highly anticipated European Central Bank QE program to purchase sovereign bonds. ***

*** Greece for its part will be facing a 3.5 billion debt rollover in July of 2015 and another 3.2 billion in August. While these pose no danger to markets under a Samaras government, they could become flashpoints under a new regime. Incidentally our understanding also is that a QE program would not include the purchase of Greek bonds if Greece were for some reason to fail to exit from its bail-out program after the two month extension (see SGH 4/15/14, “ECB: The Reality and the Rhetoric”). ***

Another Assist to Come from the EU

The latest polls show Syriza with a 3-4% lead over ND, but underneath those results Samaras still holds a considerable personal lead on the questions of trustworthiness and stewardship of the economy over Syriza’s head, Alexis Tsipras.

While Samaras has stumbled badly in both his efforts to cleanly exit the bailout program and, it now looks, in efforts to turn the presidential vote into a confidence vote on his government, there is also a mounting expectation in Athens that the EU will provide him with another last minute assist before the elections.

Specifically, there is mounting expectation that a precautionary credit line (with contingencies that could be pulled in case of a Syriza victory and overstep), will be discussed and approved, to be used to exit the bailout program once the program extension runs out at the end of February.

A Syriza victory is therefore not as certain as polls may suggest. But it is still far too realistic and dangerous of a prospect for markets for comfort, and one whose repercussions should not be underestimated, despite Tsipras’ efforts to rebrand the party as less of a threat to stability than perceived in the past.

While Syriza is not and has not advocated for an exit from the Eurozone, it will in case of victory nevertheless make its explosive demands to the EU and ECB, even if ultimately unmet or resisted by coalition partners.

Those include debt relief and rollover of the principal on official sector loans, a rolling back of all minimum wage and pension cuts, and the abandonment of the goal of a primary budget surplus in favor of a simple balanced budget.

And for all of the efforts by Samaras to point to improvements in the economy and remind the electorate of the dangers of a Syriza victory, and for all the market turmoil, Syriza has stubbornly held onto its lead in the polls with the general electorate.

Struggling to get to the 180

In the meantime Samaras is pressing full court in his attempts to gather the 180 votes to get his Presidential nominee approved and avert early elections altogether.

The most reliable vote estimates in what is still an extremely fluid situation indicate that Samaras can pick up between 15-17 of the 24 independent delegates on top of his coalition’s 155 votes, and potentially peel off a straggler or two from the 12 Independent Greek (ENAL) delegates in parliament, in his quest to get to the 180 votes needed to pass his presidential nominee.

The leader of ENAL has announced his party will not support any presidential candidate, but Samaras is nevertheless looking for some support from fellow center-right defectors. While still possible, he is however struggling to win enough of them over to clear 180.

There is speculation in Athens that Samaras could at the last minute, before the final and third ballot on December 29, switch his conservative nominee for President in order to win over straggling delegates.

But our understanding is that he has indicated an unwillingness to do so, as such a move could backfire on him even more in the real likelihood that he were to lose the 180 votes anyway, and he is indeed preparing for early elections. The Presidential vote is, after all, clearly a referendum now on early elections and has little to do with the candidate.

There was a compromise proposal floated recently by small party members to avoid a clash over the Presidential nominee in exchange for a promise for a vote sometime late in 2015, but that proposal now appears to have died.

Movement from the Left

Samaras’ lean towards the right reflects the growing realization that he is highly unlikely to pick up any votes from the 10 center-left DIMAR (Democratic Left) delegates.

DIMAR at one point was part of the ND/Pasok ruling coalition, but paid dearly for its support of the Troika austerity program before leaving the coalition and is now polling at around 1%. Its party head, Fotis Kouvelis, has announced that his party will not support Samaras, and his delegates are unlikely to defect from that position despite the lack of party cohesion.

Many of the independents who were former center-left Pasok delegates ejected for not toeing the party line for austerity likewise appear to be hesitant to back their old coalition partners, eyeing a potential tie up to their left with a Syriza government.

And the consistent lead of Syriza over ND is not lost even on those Pasok delegates currently, and nervously, aligned with Samaras under the weak leadership of Evangelos Venizelos. Ironically, the center-left Pasok may end up negotiating for a coalition position with Syriza if they were to win.

A new party, To Potami (The River) is also likely to clear the 5% threshold for the first time in new elections. Their platform is of “fiscal responsibility with a social conscience” – which basically means they are prepared to position either to the left of New Democracy or the right of Syria if asked to join in a coalition government.

The Greek system assigns 50 bonus seats to the winning party, and those are as good as currency in coalition discussions.

That, his persistent lead in the polls, and Syriza’s attempts to reposition itself as a more “rational” party, means Tsipras may not be quite as isolated as thought in the past in his search for the coalition allies needed to form a governing coalition if he were to win the largest bloc of votes in upcoming elections.

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