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Greece is heading for new elections and a possible new political crisis

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  1. Greece is headed for new elections in early 2015, after the ruling coalition's candidate for president (a largely ceremonial job) failed to get the 180 votes in parliament he needed.
  2. The Greek stock market is off over five percent and Greek bond yields are rising as a result.
  3. The election will be held on January 25.
  4. Current polling shows the incumbent coalition likely to do quite poorly in a new election, which gave opposition parties little incentive to cooperate.

Background: Bailouts and Austerity

In theory, the issue in today's parliamentary vote was the nomination of former European Commissioner Stavros Dimas to hold the not-very-powerful job of President of the Hellenic Republic. The real issue, however, is the question of bailouts and austerity.

Since 2012, Greece has been led by a coalition headed by the main center-right party, New Democracy. New Democracy has been joined in coalition by PASOK, which is traditionally the main left-of-center party, but which in recent years has been surpassed in the polls by the far-left Syriza. The New Democracy / PASOK coalition is also supported by a small left-wing party, the Democratic Left.

The mission of this coalition has been to implement the austerity budgets and labor-market reforms — including various tax hikes, a 30 percent cut in pensions, and legal changes to make mass layoffs easier, with more to come — demanded by the European Commission in Brussels and the European Central Bank in Frankfurt. In exchange for those reforms, Greece has obtained financial support from Europe and has been able to avoid a disorderly default on its external debts or expulsion from the Eurozone.

The unemployment rate in Greece continues to be terrifyingly high — 25.8 percent — which has tended to discredit the status quo parties.

What happens next

There are roughly three possible outcomes from the January 25 vote.

The status quo continues. Perhaps voters will see the financial upheaval unleashed by the latest news, turn away in fear, and return a new parliament in which the incumbent coalition holds more seats. Alternatively, even if the incumbent coalition doesn't gain seats, perhaps independent members of parliament will gain a new appreciation for the coalition's merits and support it. In that case, Dimas will become president and everything will continue as planned.

Syriza carries the day. Alternatively, the left-wing opposition party Syriza could win the elections. Until very recently, Syriza was a marginal far-left party, but it's been the big political winner from Greece's economic crisis. If Syriza wins, they say they'll renegotiate the terms of the bailout deal with Europe and bring an end to austerity. They are very unlikely to succeed at this, and would likely end up instead defaulting on Greece's debts, getting cut out of the Eurozone, and being forced into a different form of austerity — albeit one that might give Greece's economy a better chance of bouncing back.

Deadlock. One can also imagine a scenario in which parties of the far-left and far-right (including the fascist Golden Dawn) gain enough votes that no politically viable coalition is mathematically workable. In that case, well, it's not really clear what would happen. Something along these lines occurred briefly in 2012 leading to a short-term "caretaker" government of Brussels- and Frankfurt-approved technocrats. That could happen again, or you could have the kind of more severe political crisis that sometimes occurs when a country endures a years-long spell of unemployment over 20 percent.

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