Greeks Close to Forming Coalition Government

Tuesday, leading political parties in Greece were likely close to forming a coalition government without the radical Syriza party. This news eased fears that Greece would go the way of Belgium: lacking a government for over a year. The conservative New Democracy Party, which received the most votes in the elections on Sunday and has been tasked with forming a coalition over a three day period, might have reached an agreement with the leftist PASOK and Democratic Left parties to form a coalition government.

Parties in this potential coalition agreed on many issues, but had not yet come to a consensus on other matters. Each party supported the existing bailout agreements, so a full-scale reneging of the bailout is unlikely. Also, these parties all agreed that Greece needs to stay in the European Monetary Union (EMU). Lastly, these parties were widely considered to be centrist, relative to the Syriza party. Resultantly, the aforementioned coalition would likely create a balanced government that is willing to work with theTroika (International Monetary Fund, European Union, and European Central Bank). However, the parties had yet to agree on a Prime Minister and other cabinet appointees.

According to Athens News, Antonis Samaras, the leader of the conservative New Democracy party, Evangelos Venizelos, the leader of the leftist PASOK party and former finance minister, and Fotis Kouvelis, leader of the Democratic Left and former MP, were set to meet over the Tuesday to try and solidify details for a coalition government. These three parties finished first, third, and fourth respectively in the elections this past weekend.

The leaders of the three parties were generally willing to stick to prior bailout agreements with the Troika, but each of these parties has stated that it would like to extend the timeline of the implementation of reforms. Angela Merkel has publicly said that the agreements cannot be renegotiated. The Greek government budget passed for 2012 was expected to have a deficit of 18.69 billion euros, roughly 8.5% of GDP, as compared to the prescribed 17.1 billion euro deficit, or 7.8% of GDP. In the Sunday elections, many Greeks expressed outrage that Spain is expected to receive a bailout without the harsh oversight of the Troika.

Other nations had been able to extend the timelines of austerity packages. In February, Spain said it was going to miss Troika targets, and yet was able to escape severe punishment from the oversight authorities.

For late June, investors might anticipate the potential for a large number of headlines emanating both from Madrid and Athens, as investors worry over the health of Spanish finances and the ability of the coalition of Greek leaders to be successful. Along with the two-day Federal Reserve Meeting on June 19 and 20, the upcoming G20 meeting, and the late June European summit, other headlines pose risks to investors. Investors might consider positioning accordingly in globally exposed assets.