To be sure, a new coalition government that favours Greece’s membership in the eurozone does not solve the problems plaguing that deeply troubled country. Still, if it feels like we dodged a bullet yesterday when only about a quarter of Greeks voted for Syriza – a party that promised to rip up bailout agreements struck with the European Union (EU) and International Monetary Fund (IMF) – that’s because we pretty much did.
It’s an overstatement to say the global economy will benefit from this decision. But we do seem to have averted a disaster for the time being.
Here’s a quick overview of why Sunday’s vote was so important, and what you need to know about what comes next:
- The New Democracy party won the most votes. That party is in favour of sticking to the EU and IMF agreements and working to turn Greece’s economy around from inside the eurozone. According to last night’s reports, 30% of votes went to New Democracy. Syriza, a left-wing party that promised to renegotiate the tough bailout agreements, earned 27% of the vote. Pasok, a more centrist left-wing party, won about 12%.
- This is the second election Greeks have voted in this year. The first was held in May, but after New Democracy won 19%, Syriza won 17% and Pasok won 13%, efforts to strike a coalition government failed. The May result was a shock to many, and appeared to reflect deep frustrations among Greeks with the state of their economy and the reforms being implemented as a result of the EU and IMF deals. Even Golden Dawn, an extreme right-wing party that critics describe as neo-Nazi, won 21 seats in the Greek parliament with 7% of the vote.
- New Democracy has three days to form a coalition government. If party leader Antonis Samaras fails, then second-place Syriza has three days to do so. If they fail, Pasok has the same three-day period. If no-one succeeds, then it’s up to Greek President Karolos Papoulias to piece together a compromise. (In Greece, the presidential office is mostly ceremonial; the prime minister holds chief executive power.) The Greek parliament has 300 seats. New Democracy won 128 seats, Syriza won 72 and Pasok won 33. (Golden Dawn won 18.)
- The Greeks may still try to renegotiate their bailout agreements. The current austerity program is a tremendously difficult policy to maintain in Greece. Given how hard it will be for New Democracy to form a coalition, a drive toward a new deal that causes Greeks less financial hardship wouldn’t be surprising. But that will be tough to get done. There is little or nothing in this election result that will lead creditors to feel more confident about the management of Greece’s economy.
- Meanwhile, Greece continues to come apart at the seams economically. Its national debt is more than one-and-a-half times its annual gross domestic product. Unemployment is over 22% across the country. Among Greeks under 25, the rate is an astonishing 50%. Tourism, which is critical to the national economy, is estimated to have dropped 15% to 25% this year. The economy as a whole has shrunk by close to a quarter since 2008. The pressing fear right now is a run on Greek banks. Close to $1 billion worth of euros have been withdrawn in the past month, as depositors fear that their country’s financial institutions will collapse.
- Greece’s long-term membership in the eurozone remains uncertain. Given yesterday’s result, I think it’s likely Greece will continue to work at the tough reforms demanded as part of the bailout deals. This is the “muddling through” scenario often referred to by those who see the Greeks finding a way to get this done. It doesn’t guarantee Greece remaining in the Eurozone, though. If they’re unable to implement the reforms, the decision might be made for them. The key for the region – and to an extent the global economy – will be to what extent other countries can prepare for the shock of a Greek exit if and when it happens.