Alexis Tsipras’s renewed mandate will allow him to push for more debt relief and an easing of austerity conditions

What a difference eight months can make. When Syriza came to power in Greece in January it did so on a wave of voter enthusiasm. There was talk of an austerity party breaking the mould of post “great recession” politics. Europe’s political establishment looked on in horror. The financial markets trembled.

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All the euphoria and most of the apprehension had disappeared by the time Greeks voted today. Alexis Tsipras has won but the turnout was low and the mood sullen. The financial markets are no longer concerned that Syriza will be the template for a pan-European political backlash against budget cuts or that it could start the breakup of monetary union by leaving the single currency.

In reality, there is no reason for the markets to worry about Greece, at least for now. Tsipras quickly discovered once he had swept to victory in January that he could not deliver on a mutually incompatible trio of election pledges: to end austerity, to put the economy on the road to recovery and to stay in the euro. He has achieved just one of these objectives – remaining in the euro – but at a high price.



The fresh dose of deflationary measures in Greece’s new €86bn (£62bn) bailout programme, agreed in July after Tsipras folded under pressure from creditors, will deepen a depression similar in its severity to those that afflicted Germany and the United States in the 1930s. The Greek economy has contracted by 29% since 2009 and is still shrinking after months of financial turmoil. Yet Greece remains part of a single currency that has emerged bloodied but intact. All the main parties contending the election were committed to continuing with the bailout that Tsipras negotiated in the summer.

Even so, the election will have consequences. Syriza has done well enough to form a workable coalition, thereby avoiding the need for another election and removing one of the hurdles before Greece has the first review of its bailout some time before the end of the year.

Tsipras is confident that a successful review will mean European money is handed over to recapitalise the fragile Greek banking system, enable the European Central Bank (ECB) to buy Greek bonds as part of its quantitative easing programme and pave the way for debt relief.

The International Monetary Fund says Greece is unlikely to make a full economic recovery without a significant reduction in its debt burden and has said it will not contribute to the €86bn support package unless Europe offers Athens more generous terms.



Tsipras will step up the pressure for debt relief now that he has his new mandate, and hopes that Greece can at last start to regain some of the ground lost in the past six years. He will argue that less onerous austerity measures would speed this process, a line that is likely to find little support at the European Commission, the ECB or in Germany.



The ratings agency S&P is still concerned about Greece’s economic prospects, noting that it remained to be seen whether Greece could emulate Ireland, Portugal and Spain in attracting investment from abroad.



Tsipras will step up the pressure for debt relief now that he has his new mandate

The S&P report said debt relief was one way to put the “spectre” of Greece defaulting on its debts to rest, but added that this would be a difficult and potentially politically costly decision for European governments to make.

“One thing seems certain to us. Without greater confidence in a future for Greece within a currency union, co-existing with enough pro-growth policies to support better employment opportunities, the odds of failure remain as real as the possibility of success,” said Frank Gill, Standard & Poor’s credit analyst.

The danger is that the austerity conditions remain fully in force and debt relief is much less generous than Tsipras is hoping for. It will require an improbably strong and rapid recovery for Greece to meet the optimistic growth and deficit reduction targets contained in its current bailout deal. As a result, the likelihood is that they will be missed, leading to pressure for further budget cuts.

What does that mean? It means that Greece will be back in the headlines for all the wrong reasons before too long. There will be talk of the need for a fourth bailout and of possible default if Greece doesn’t get one. The election is over; the economic crisis is not.

