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Despite a looming political crisis, Greece is no longer the threat to the Eurozone that it was in 2012

Davison, R. (2014) “Despite a looming political crisis, Greece is no longer the threat to the Eurozone that it was in 2012“, LSE EUROPP, 22 Δεκεμβρίου.


The Greek parliament is due to hold a second round of voting on 23 December to elect the country’s next president, following an unsuccessful vote last week. Remy Davison writes that while the threat of a political crisis is very real, the situation is very different from 2012, where the country’s economic problems threatened to spill over into a wider Eurozone crisis.

Markets loathe uncertainty. They particularly despise uncertainty as the year draws to a close. No trader wants to devote the Christmas-New Year shutdown to biting their finger nails, having gone stupidly long on Greek bonds. On 13 December, all of the major European market indices fell, victims of the general air of pessimism about 2015. Fortunately, on 18 December, Euro markets rallied in their biggest gain in three years as Greek opposition leader, Alexis Tsipras, committed to keeping Athens in the Eurozone.

But the parliamentary crisis brewing in Greece still has the potential to spill over into the brittle Eurozone economy. Greek legislators held an inconclusive first-round vote for a new president on 17 December. A second round will be held on 23 December, while a third round, if required, will take place on 29 December. However, Greek Prime Minister Antonis Samaras’ coalition government may not command enough votes to elect Stavros Dimas, Samaras’ preferred candidate. If the Greek parliament fails to elect a new head of state, this automatically paves the way for a snap parliamentary election, with Tsipras’ Coalition of the Radical Left (Syriza) currently leading the opinion polls.

Samaras is playing a dangerous game. On the one hand, he is counting on Greek voters’ support for a ‘clean exit’ from the 2011 bailout, meaning an end to budgetary monitoring imposed by the troika: the European Commission, IMF, and European Central Bank. Samaras is conjuring up a future where there is no requirement for an EU line of credit, coupled with a cautious restoration of Greek fiscal sovereignty. However, markets have already denied him his clean break. The IMF programme for Greece is scheduled to run until 2016, which means it will continue to monitor the Greek government’s adherence to conditionality.



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