Beware of Greeks bearing unwelcome gifts this Christmas

2015 could begin with bad news from Greece. The governing coalition has put forward a candidate for the Greek presidency, and has said that if he is not approved by the end of 2014 then they will call a general election. For the last few months the Greek opinion polls show the Syriza party as likely to win any general election. Syriza’s major policy proposal is to call on the rest of Europe to “restructure” or forgive a large part of the money that Europe has lent to Greece. They are threatening that should this not be forthcoming, then they will unilaterally default on their debt, threatening another financial crisis in the Eurozone.

The process for selecting a president is that a candidate must win two-thirds of MPs support – this is 200 out of the 300 Greek MPs, on either a first or a second vote. On a third vote, only 60% support or 180 MPs is sufficient. On Tuesday, on the second vote, the governing coalition achieved 168 votes, essentially just the votes of the parties in the coalition and little support from other parties. The third vote is on December 29. It is not at all clear that 12 more votes can be found for the government’s candidate.

So a New Year election is a distinct possibility. A Syriza victory is also a distinct possibility although it is expected that EC leaders will make speeches making it very clear to the Greek people that a Syriza vote is a vote for chaos. There is little support, particularly from Northern European countries, for the idea of writing off loans to Greece, though Portugal and Ireland will be watching with keen interest, having also borrowed heavily in the wake of the Eurozone crisis.  Syriza would though like to remain in the euro – in effect retaining the asset of the euro membership but losing all the liabilities from their debts. Cakes and eating come to mind!

From a Greek perspective, now would actually be a very good time to default on past debt. After years of savage austerity, the Greek budget is now just in surplus before accounting for debt interest or the repayment of debt. This means that Greece no longer needs to borrow money from anyone to fund itself, and so its level of debt is near a peak. Defaulting now has lots of upside and limited downside from this perspective.

The German word for debt is has very close links with the word for guilt, and Germans would regard a Eurozone country defaulting on its debt as profoundly wrong, threatening the very sanctity of the single currency. There would be a strong move to have Greece ejected from the euro, though there is no legal process for any country to leave the euro.

While the world enjoys its Christmas and New Year holidays, Greek MPs will be determining whether we return to our desks to find a new crisis threatening the Euro.