Sep 22nd, 2015, Tsipras returns to Maximos Mansion but new bipartisan government’s time horizon may be short term

• Tsipras (leftish) was sworn in as Greece’s Prime Minister after his personal triumph in Sunday’s  elections, and his agreement with Independent Greeks (nationalists) to form coalition government.

 

• However, the total number of MPs who will support Tsipras’ new government is 155 (out of 300), which consists of 145 SYRIZA MPs and 10 of Independent Greeks ones. The new coalition government is supported by 7 MPs less compared to his previous coalition government, which was 162 MPs (149 SYRIZA’s MPs and 13 Independent Greeks).

• The head of the European Parliament, Martin Schulz, questioned the decision made by Greek leftist Alexis Tsipras to renew a coalition with the extreme right-wing Independent Greeks party.  

• New Democracy’s Meimarakis announced a party conference to elect the new leader of Opposition, in October.  

• Elections abstention was increased significantly in Sundays’ elections i.e. 5.57 mios voted in Sunday’s elections compared to 6.33 mios voted in Jan’15, and 2.05 mios who voted in 2009. This is translated to a reduction of 1.5 voters during the 6 years period of austerity. Although Tsipras maintained his power, in terms of percentage of total voters, SYRIZA received 320K less votes compared to last January (1.93 vs. 2.25 mios). 

 

Greece’s new government has to ratify by mid-October, a set of new measures of approx. 3-5 bios euros (1.5-2.5 % of GDP) such as: 

1. the increase in the tax rate on farmers to 20% in 2016 and to 26% in 2017, from 13% today
2. the tax on TV adverts, the tender for the auctioning of TV channel licenses,
3. the increase in the tax on rental incomes from 11 to 15% for annual earnings of up to 12,000 euros and from 33 to 35% for greater earnings,
4. the gradual abolition of the special tax status for the shipping sector. 

• On the other hand, Greece's debt due increased to approx. 7 bios euros during the first 8 months of 2016 while old debt amounts to 72.18 bios euros (44.4% of GDP)
• last but not least, the new government will have to complete Greek Banks' recapitalization.

 Risk assessment: The elections’ result was Tsipras' personal triumph, who gambled on the snap elections last month to see off a revolt by party radicals over his U-turn on accepting more tough austerity measures in exchange for Greece’s third international bailout.

Although the country’s risk profile has been substantially improved since early July, uncertainty remains at comparatively higher levels compared to rest of Eurozone; this is related to the implementation risk of 3rd MoU and sustainability of new government.

For instance, the 10 yr. bond yield fluctuates close to 8.3% vs almost 20% in July 10^th.  In addition, the bipartisan coalition government may have a short term time horizon due to the following reasons:

·         Tsipras return to Maximos Mansion (Prime Minister's Office) with his hands tied due to the 3^rd MoU.

·         Although the percentage of abstention (45%) is not reliable because electorate’s lists are not automatically updated, the significant reduction of voters (-1.5 mios since 2009) represents a significant factor of uncertainty.

·         The 3^rd MoU is frontloading in terms of implementation of structural reforms. The new Tsipras’ government will have to implement a significant number of new measures by end October, which appears highly uncertain considering the various statements of newly elected MPs.

·         It is highly unlikely that pro Europe political parties such as New Democracy, PASOK, Potami and Centrist Union will either offer vote of confidence or support new government’s legislation.

·        the formation of a bipartisan government between leftish SYRIZA and extreme right Independent Greeks, is considered as an opportunistic alliance without any ideological and or strategic substance. It also represents a show stopper to receive any support by other pro Europe political parties.

·        the new set of structural reforms will impact significant vested interests such as farmers, pharmacists, pensioners and state employees (due to privatization plan).

·         Although Tsipras has cleared his parliamentary group from the Eurosceptic Leftish Platform,  it is highly likely that he will face issues from the so call ‘Movement of 53’ which represents his new internal opposition.

Tsipras will need to cancel his coalition with Independent Greeks, in order to secure the form of the other two pro Europe, centre-left political partes and form a three party coalition government i.e PASOK (17 MPs) & Potami (11 MPs) . This government will have centre-left political orientation according to European standards and a total number of MPs 173 (145 + 17 + 11) .

It is highly unlikely that either New Democracy (due to its conference) or Centrist Union (new party) will join a coalition government with SYRIZA, at this stage.