Greece may be a small country, but its vote this Sunday may be the most important in the world this year.
While the June 17 election is not directly billed as a referendum on Greece paying its debts and staying in the euro, its might as well be. If no party wins enough votes to form a coalition, as with the last vote, then the Greek situation may very well remain as it is now – a jumbled mess of no real leadership, no real plan and perhaps no real way to stay a member of the euro zone economic family.
Though seemingly complicated, this Greek drama is actually quite simple. In a nutshell:
- Greece could run out of cash to pay its bills by the end of this month, thus...
- Greece needs a bailout, however...
- Greece likely can't get a bailout without agreeing to tough economic oversight (aka "austerity"), and...
- Greece can't agree to anything without a majority coalition government, but...
- Greece doesn't have a majority coalition government, thus...
- Greece needs a majority coalition that wields the necessary power to push an austerity/bailout plan through.
All sounds fairly simple, until you recognize that the 300-member Greek parliament requires control of at least 151 seats to form a coalition, and right now there is no single party expected to win anywhere close to that number.
One final quirk of Greek politics, which may actually be the saving grace: the political party that wins the most votes automatically receives 50 more 'bonus' seats.
With all this in mind, here's a (hopefully) easy scorecard for you to play along with at home on Sunday.
- BEST FOR THE MARKETS: A New Democracy win with enough Pasok support to gain 151 seats in parliament.
Both of these parties generally support the bailout and austerity measures, want to remain in the euro zone and are most likely to play well with others (namely the Germans). It's 'generally support' because no one in Greece is terribly enthused about any of the harsh terms imposed by the so-called "troika" (European Commission, ECB, and IMF), but if these parties garner enough votes to form a ruling coalition it should greatly ease market uncertainty, at least for a while. Bank of America Merrill Lynch calls this a "very favorable outcome for U.S. corporate credit as the probability of a disorderly Greek exit from the euro is significantly reduced."
- SLIGHTLY BETTER / STAYS THE SAME: A win by New Democracy yet without the 151 votes combined with Pasok to form a ruling coalition.
If New Democracy and Pasok can get close to the 151 seat total, they will work desperately with the other two more moderate parties, Democratic Left and Independent Greeks, to reach a deal that would effectively form a coalition. Though those two parties don't support all the same austerity and economic measures as New Democracy and Pasok, there's hope in the market that Greece's increasingly desperate financial situation will force them to reach a deal, however distasteful to some of their followers.
- BAD FOR MARKETS: A big win by Syriza
Bank of America Merrill Lynch called this outcome a potential "roller coaster" for the markets. Led by charismatic 37-year-old Alexis Tsipras, Syriza has literally come out of left-field as a new power player. Syriza is against austerity measures, and Tsipras has openly challenged European officials on them. If Syriza gets most of the popular vote, it will also push to make deals with other parties, most likely the Communists and Democratic Left, to attempt to form a ruling coalition that would take a hard line stance. That government would essentially be playing the single greatest game of economic poker the world has ever seen, and Angela Merkel and Mario Draghi may not be in the mood to play games.
Keep in mind the above should not be seen as a bible, but rather a basic framework of the likely outcomes. Surprise deals can always be made and surprising allies can always appear. That said, if you are pro-bailout and pro-Greece staying in the euro zone, pull for New Democracy and Pasok.
One final note: if no coalition government can be reached either through the vote or the deal making process, the Greek constitution calls for - you guessed it - yet another election. Of course, by the time that happens Greece will have likely not agreed to anything, not received more euro zone cash and defaulted on its sovereign debt. In which case, the world is unlikely to care anymore because the damage will have been done.
Though words such as "important" and "key" are often overused in the media when describing events that may not be those things, this is not one of those times.
This vote is huge.