Political uncertainty in Greece has driven further market volatility this week. Specifically, the Greek government’s failure last week to find a parliamentary majority for its presidential candidate has triggered a snap general election scheduled for 25th January that could bring to power the hard-left Syriza party. Given that Syriza and its leader Alexis Tsipras rose to prominence through outright opposition to the international bailout that the government negotiated in 2012, this has in turn driving renewed speculation that Greece will exit the Euro. Indeed, Der Spiegel magazine fanned the flames of speculation further over the weekend with a report that the German government was no longer committed to keeping Greece in the Eurozone at any cost.
Should Syriza gain power it is expected that they will make demands for a relaxation of austerity and a lightening of Greece’s debt load. The dilemma that will then face Ms Merkel is that whilst the German chancellor wants Greece to remain in the Eurozone, she does not want to grant excessive debt relief or other concessions sought by Greeks for fear of overburdening German taxpayers with the costs.
Speculation as to the results and ramifications of the imminent Greek elections will no doubt drive further volatility in the weeks to come. However, proximity to power seems to be tempering Syriza’s hard line stance, suggesting that successful negotiations to stay in the Euro may be possible should they gain power.