The elections called by Greek Prime Minister Alexis Tsipras this week will probably be held on 20th September. Only the timing of the announcement was a surprise. Elections were widely expected after the third bail-out agreement of €86bn was approved by other EU parliaments, most recently Germany and the Netherlands on Wednesday. Asking for a new mandate was thought to be necessary to allow Tsipras to consolidate his position; he has only been able to get the Greek parliament to approve the bail-out's tough conditions by relying on support from the main opposition parties. Many of his Syriza members of parliament have instead been voting against the package.
But most people thought Tsipras would wait for mid-autumn; by then the bank recapitalisation phase, started already with €10bn from the first tranche, would have been completed. With it, the punitive capital controls—imposed on the banking system when the European Central Bank (ECB) froze the amount of emergency liquidity it would provide to the Greek banking system—would also have been lifted. Delaying might also have allowed Tsipras to move towards some restructuring of Greek debt, which now not only the IMF but also Mario Draghi at the ECB and Mark Carney at the Bank of England consider unsustainable.
But he decided to go early. Why? Two reasons. First, he wanted to avoid a confidence vote which was scheduled for tomorrow and which he was likely to lose, given the strength of opposition from radical left wing elements in his party. Second, if reforms are to be implemented, he needs to demonstrate support from his own party, which at present appears increasingly divided.
Tispras counts on the fact that he remains popular with the public despite having delivered few of the pre election pledges that won him his positions in January's elections. The expectation is that the radical left Syriza faction, known as the Left Platform, will probably split off and become the main opposition party. Tsipras may not win a majority, but he should still lead the largest party.
A more centrist social democratic coalition will be built, much more likely to be trusted and able to negotiate debt reduction. It is vital that funds come in to help growth—the €35bn Juncker plan with European Investment Bank money, funds from the European Bank for Reconstruction and Development that is waiting to fund SMEs through a (hopefully) cleaned up banking system, and part of the €315bn infrastructure fund. Fitch, the credit rating agency, has already raised Greece's sovereign debt rating to CCC.
If the vote goes the right way, Greece's position in the eurozone should be more secure as the likelihood of it implementing reforms increases. But the elections mean that the return to normality may take longer and capital controls, though eased somewhat, will be maintained while the European central bank is doing its asset quality review. Greece is receiving some €10bn from the first tranche of the third bail out but we won't know what more it needs for at least another month. And the entry of Greece into quantitative easing run by the ECB may have to wait for reassurance of the election result. While things are looking up, for Greece's economy, already very badly hit by capital controls this summer, the long wait will continue.
But most people thought Tsipras would wait for mid-autumn; by then the bank recapitalisation phase, started already with €10bn from the first tranche, would have been completed. With it, the punitive capital controls—imposed on the banking system when the European Central Bank (ECB) froze the amount of emergency liquidity it would provide to the Greek banking system—would also have been lifted. Delaying might also have allowed Tsipras to move towards some restructuring of Greek debt, which now not only the IMF but also Mario Draghi at the ECB and Mark Carney at the Bank of England consider unsustainable.
But he decided to go early. Why? Two reasons. First, he wanted to avoid a confidence vote which was scheduled for tomorrow and which he was likely to lose, given the strength of opposition from radical left wing elements in his party. Second, if reforms are to be implemented, he needs to demonstrate support from his own party, which at present appears increasingly divided.
Tispras counts on the fact that he remains popular with the public despite having delivered few of the pre election pledges that won him his positions in January's elections. The expectation is that the radical left Syriza faction, known as the Left Platform, will probably split off and become the main opposition party. Tsipras may not win a majority, but he should still lead the largest party.
A more centrist social democratic coalition will be built, much more likely to be trusted and able to negotiate debt reduction. It is vital that funds come in to help growth—the €35bn Juncker plan with European Investment Bank money, funds from the European Bank for Reconstruction and Development that is waiting to fund SMEs through a (hopefully) cleaned up banking system, and part of the €315bn infrastructure fund. Fitch, the credit rating agency, has already raised Greece's sovereign debt rating to CCC.
If the vote goes the right way, Greece's position in the eurozone should be more secure as the likelihood of it implementing reforms increases. But the elections mean that the return to normality may take longer and capital controls, though eased somewhat, will be maintained while the European central bank is doing its asset quality review. Greece is receiving some €10bn from the first tranche of the third bail out but we won't know what more it needs for at least another month. And the entry of Greece into quantitative easing run by the ECB may have to wait for reassurance of the election result. While things are looking up, for Greece's economy, already very badly hit by capital controls this summer, the long wait will continue.
