How Greece’s political crisis may impact your investments in the Euro area (Part 5 of 7)
Can Syriza win?
So far, the economy of Greece (GREK) has faced five years of difficult reforms, four changes of government, two bailouts, two elections, and one never-ending euro crisis. Greece needs to find a way to come off its state of triple bankruptcy in terms of its public debt, banks, and private sector. Moreover, its population is exhausted by five years of recession, tax hikes, and record unemployment rates.
Given the situation, the anti-austerity Syriza party and its leader Alexis Tsipras may stand a chance of winning the early elections. The early elections must be called if the Greek Parliament fails to elect a new president by December 29, ousting the current New Democracy party.
Greece’s far-leftist party, Syriza is a coalition party formed in 2004. However, its electoral appeal gained prominence only two years ago, when it came in an unexpected second in elections under the leadership of Alexis Tsipras. While the party has since moderated many of its policies, it remains committed to increasing social spending and wants the Euro area and European Central Bank to write down some of Greece’s loans.
Syriza party propaganda
Syriza’s political proposals offer several reasonable ways out of austerity, including renegotiating with creditors. The party also proposes:
- To offer free electricity, food, shelter, and healthcare for the poor
- To reverse privatizations
- Tax cuts, except for the wealthy
- Rise in wages and pensions
- More civil servants to boost employment
- A moratorium on individuals’ need to repay banks
Greece is the Eurozone’s most indebted country, with a 175.1% debt-to-GDP ratio. In the world, it’s second only to Japan, with a 227.2% debt-to-GDP ratio. Given Greece’s heavy indebtedness, it is unclear how the Syriza government would finance such expansive policies. Also, if Syriza fails to put an end to austerity in Greece, it will end up spending so much money that it would essentially make Greece’s position in the Eurozone untenable.
One country leaving the Eurozone (VGK) could perhaps trigger a chain reaction with Italy (EWI), Spain (EWP), or Portugal (PGAL) following suit. Investors in the area have already become wary about the country being able to maintain its place in the Eurozone.
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