EUROPEAN markets have virtually shrugged off a likely brinkmanship between Greece's creditors and the nation's new anti-austerity coalition government.
Within hours of winning 149 seats, just two short of a majority, Greek Prime Minister-elect Alexis Tsipras forged an anti-austerity alliance between his radical left wing Syriza party and the right wing Independent Greeks. The alliance of two parties, with very different political philosophies, has come about because both agree that austerity of impoverished Greece must end. In an interview published on Saturday, Mr Tsipras said that a Syriza government's first priority would be a two billion euro (S$3 billion) welfare package to help more than a third of the populace, who are in the depths of poverty.
The coalition intends to shake off the tight spending, high taxation shackles under the present deal with Greece's creditors. Greece owes around 245 billion euros to the so called "Troika" of the European Central Bank (ECB), European Union (EU) and International Monetary Fund (IMF). The coalition aims to renegotiate the debt, but that must be done in the coming weeks as economists say that the government is running out of money. Greece's bailout deal is due to end at the end of February and Mr Tsipras has to negotiate the continued flow of seven billion euros. Greece's government debt as a percentage of gross domestic product is worryingly high at 175 per cent, 10-year bond yields are 8.5 per cent and the country must raise more than 10 billion euros in the spring and summer to redeem bonds that fall due for repayment.
On initial results of the election, the euro plunged to an 11-year low against the US dollar of around 1.11 and the Greece market, which at first fell by more than 5 per cent, led other European markets lower. By midday European time, the euro, stock and bond markets recovered on the rose-tinted-spectacle view that the coalition would be pragmatic and make a deal with the nation's creditors.
"Greece will have to compromise," opined David Owen, chief European economist at brokers Jefferies International.
The market rally indicates that other market participants agree that pragmatism will rule among members of the new coalition. Moreover, the 1.1 trillion euros of ECB quantitative easing (QE) will counter uncertainty. Several cite statements of Mr Tsipras that "an exit by Greece or any other crisis country would be a disaster for Europe".
Roger Bootle, chief executive of Capital Economics, is less sanguine. "In the coming days, we will see whether Greece and Germany can settle their differences."
Syriza led New Democracy, the ruling centre-right party, by 36.3 per cent and with the Independent Greeks, the party which won 13 seats, the coalition will have a majority of 41 per cent in the Athens Parliament.
"Greece is turning a page, it's leaving behind five years of humiliation and misery. We are putting together a government of social deliverance to carry out our programme and negotiate with Europe," Mr Tsipras said in front of cheering supporters. "The verdict of the Greek people ends, beyond any doubt, the vicious circle of austerity in our country."
Mr Tsipras thus intends to carry out government policies to slash unemployment and negotiate debt forgiveness or a debt extension with creditors. Germany and other northern European governments have already indicated that they oppose partial cancellation of Greek debt and other forms of debt relief, such as extended repayment maturities and lower interest rates, unless Greece continues to reduce its fiscal deficit and carry out labour, state and other economic reforms. In response, Mr Tsipras suggested a European conference similar to the 1953 London conference that wrote off German debt after World War II.
"I hope the new government won't call into question what is expected and what has already been achieved," said Germany's central bank president Jens Weidmann, adding that the new Greek government should continue to tackle its nation's structural problems.
The risk for the markets is thus a log jam in negotiations and another euro crisis could evolve, leading to a threat of a Greece debt default and possibility that the nation will have to leave the euro. Mr Tsipras will thus have to balance on the tightrope between economic reform demands from Greece's Troika creditors and Syriza's hard-left faction instructions that he should see the best possible debt terms under a renewed, more relaxed Greek economic policy.
Mr Bootle and other eurosceptics also caution that anti-euro and anti-austerity populist parties in Spain, Italy and France could scuttle the political dream of eurozone unity. Pablo Iglesias, leader of Podemos, a Spanish left-wing party, for example, flew to Greece to support Mr Tsipras in his election campaign.