Antonis Samaras, leader of the Greek New Democracy party which won the Sunday elections, has begun negotiations on Monday in order to build a coalition government. Alexis Tsipras, whose Syriza party came in second, called for a cabinet willing to renegotiate the terms of the international bailout.
"Greece's significant and reinforced ability to renegotiate the terms of its loan deal must not be wasted," Tsipras said after his meeting with Samaras on Monday, during which he refused to take part in the coalition. He added that Syriza "won't stand in the way” but it also “won't cede this right that was earned with our efforts."
BNP Paribas analysts comment: “We expect the negotiation over the formation of a government to be tricky but to end with a ND-Pasok-Democratic Left alliance. Any new government would try to renegotiate, albeit partially, the bail-out programme.”
They also believe that EU leaders will be willing to compromise, which will mean “an
extension of the deadline to reach targets rather than a softening of the required measures,” and consequently, “more funding to Greece, i.e. additional loans and/or restructuring of official loans.”
Indeed it seems that EU leaders, relieved with the outcome of the Greek elections might become a bit more flexible as far as the bailout programme is concerned. Germany, which until now firmly opposed any changes, hinted on Monday that more time might be given to Greece so that it can carry out its program of economic reforms.
G20 to discuss EU debt crisis, ways of boosting growth and employment
Meanwhile, the G20 leaders, who gather today in Los Cabos, Mexico, are increasing their pressures on the EU to take firmer steps to combat the debt crisis. It is expected that European officials present a definite plan of containing the crisis and appeasing the turmoil in the markets.
The G20 representatives will also discuss ways of stimulating growth and employment in order to reinforce the ailing world economy.
Yield on Spanish 10-year debt back above 7%
Yields on Spanish 10-year bonds rose from 6.76% to 7.18% on Monday, despite the fact that the pro-bailout parties won elections in Greece on Sunday, reassuring investors that the country will remain in the euro for now.
Last Thursday Spanish yields hit a record high of 7%, widely regarded as an unsustainable level. On Friday they narrowed to 6.84%, on rumors of plans of a coordinated central bank action aimed at providing emergency liquidity in case Greek elections cause a turbulence in the markets.
According to Tristan Cooper, Sovereign Debt Analyst at Fidelity Worldwide Investment: “A fear for bond holders is that Spain is taken out of the market by the EFSF/ESM. This would reduce the incentive for the ECB to intervene to cap Spain's bond yields. Thus far, the expectation of intervention by the ECB has acted as a psychological disincentive to short. If this disincentive is removed, yields could move higher. But taking Spain out of the market would be a huge gamble for European policy makers as it would deplete support funds and fuel more speculation around Italy.”
Pro- Europe ND wins Greek elections
The immediate chaotic outcome of the Syriza victory in the second round of Greek general elections has been avoided, with the pro-bailout party New Democracy being confirmed as the winner after topping the vote count with over 30% vs a 26% from Syriza.
Now is time for the New Democracy leader Mr. Samaras to find enough support and form a coalition government, quite a predictable outcome following the latest comments from PASOK leader Mr. Venizelos, who first opposed unless Syriza also joins in, only to claim he had been misinterpreted later. The joke of politics to its fullest expression indeed.
According to the Research Team at Investica UK: "There will be massive international pressure for Greece to form a cohesive government, especially given the destabilising impact on the rest of the Euro-zone. Whatever the composition of the administration, there is no doubt that it will also be looking to change the bailout terms, but it will have a weak hand to play."
Odds to get the bullet of a weak coalition governemnt unable to govern effectively are very high. However, the German stance over the next few days will be key to find out whether the can can be kicked further down the road or else make them run out of patience.
The German Foreign Minister Guido Westerwelle signaled on Sunday in comments for Reuters that Greece could get more time to cut debt.
"There can't be substantial changes to the agreements but I can imagine that we would talk about the time axes once again, given that in reality there was political standstill in Greece because of the elections, which the normal citizens shouldn't have to suffer from," Westerwelle said on German TV station ARD.
"But there is no way out of the reforms. Greece must stick to what has been agreed. If we said to Greece, no matter what we agreed, it doesn't matter anymore, then we would get a problem with all the other European countries that are diligently and persistently implementing their reforms."
Meanwhile, Fin Min Schaeuble said Greece’s struggles will last but is necessary and will give Greek people prospects for a better future. Separately, the White House said it’s in the interest of all for Greece to remain in the eurozone and respect its commitments to reform.
Simon Smith, chief economist at FxPro, comments on tonight's result: "The fact that New Democracy came ahead of Syriza, who were looking to drastically re-negotiate the current bailout with the troika, means that markets are likely to breathe a collective sigh of relief, although it could well be brief. Given what is at stake, all parties are likely to negotiate in great detail in order to secure their mandate for a coalition."