Why markets shouldn’t be afraid of Syriza

Greece has a new government, led by left-wing, anti-austerity Syriza – an event that has heightened fears about the country's economic future and relationship with the other 18 countries that use the euro.

Syriza, led by Alexis Tsipras, have agreed to go into coalition with the Independent Greeks – a right-wing, anti-bailout party led by a former New Democracy minister, which thinks that Germany should pay Greece reparations for occupying it during the Second World War.

They are unlikely bedfellows, united by a common enemy: austerity and the international creditors who have enforced it.

Greek bond yields have risen, and its equity markets fallen, on Monday, as investors digest the news. There are concerns that we're weeks away from a repeat of 2012's euro zone debt crisis, where fears of a default by Greece on its debts would permanently fracture the euro zone.

But here, we take look at why it may not be time to panic – yet.

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Grexit…or not

Alexis Tsipras, leader of the radical leftist party Syriza, delivers a speech during a congress of the party in Athens, on January 3, 2015. Syriza.
Angelos Tzortzinis | AFP | Getty Images
Alexis Tsipras, leader of the radical leftist party Syriza, delivers a speech during a congress of the party in Athens, on January 3, 2015. Syriza.

The possibility Greece would end up crashing out of the single currency sent markets into a tailspin three years ago. However, 75 percent of Greek voters still say they want to remain in the euro, something which Tsipras will have to heed in his negotiations.

Even so, the euro zone is in a better shape than it was in 2012: Other "peripheral" countries -- Portugal, Ireland and Spain -- are in better economic shape than they were last time around.

There are also more extensive backstops in place to help out banks with large exposures to Greece, such as France's Credit Agricole or Germany's KfW. And of course the ECB is committed to keep the liquidity flowing, after its announcement of a new quantitative easing last week.

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Everything is negotiable

Tsipras may have sounded like a firebrand en route to office, but he would not be the first politician to be more pragmatic once in office.

With the next tranche of debt repayment due to Greece's creditors on March 1, he will barely have time to appoint his cabinet before getting to the table with the troika of the International Monetary Fund, European Commission, and the European Central Bank, which represents around 80 percent of Greece's debt.

Progress in these troika negotiations could include Greece being allowed longer to pay off its debt, and at lower interest rates, coupled with more relaxed fiscal targets, possibly in return for some movement on structural reform.

Actual writedowns in the value of its debt, which currently represents around 175 percent of its gross domestic product, would be more controversial internationally.

Corruption crackdown

You don't have to spend too long in Greece to notice the level of corruption, which has been identified time and time again as one of the factors holding back the economy.

Syriza has expressed a wish to crack down on this burden, any progress here could represent a substantial step forward.