Syriza victory in Greek elections reignites eurozone fears

With almost all votes counted, Syriza won 36.3% of votes, securing 149 seats out of a possible 300. This is a larger share than was expected, with Syriza comfortably beating ruling centre-right party New Democracy, which won 27.8% of votes.

Syriza's leader, 40-year-old Alexis Tsiparas, has vowed to bring an end to "the vicious circle of austerity" in Greece.

His main aim is to renegotiate the terms of Greece's bailout from the Troika, comprising the European Central Bank, the European Commission and the International Monetary Fund, the repayment of which has led to widespread unemployment, falling wages and a stagnating economy.

Tsiparas has, however, repeatedly stated his intention for Greece to remain within the European Union and the single currency union.

Coalition

As Syriza is two seats short of an overall majority, the party will need to form a coalition government with initial reports suggesting a possible partnership with either ANEL (Independent Greeks) or To Potami (The River).

According to Barclays Bank, a coalition with ANEL, a hard-line euro-sceptic party, could be negative for markets as it is likely to raise concerns over the country's future relationship with the single currency area, while a coalition with the more moderate To Potami is likely to be more positive.

"ANEL is a rather radical (anti-Troika, anti-Europe) party and could be a worrisome outcome for markets. We continue to think the To Potami party could be a suitable partner, which would be a mildly positive outcome for markets," Barclays analysts say.

Other analysts have voiced fears that Syriza's victory could have negative ramifications for Europe as a whole, where hard-line anti-austerity, anti-Europe parties continue to grow in popularity.

Jonathan Loynes, chief European economist at Capital Economics, says: "There is a danger of a prolonged stand-off with the Troika as Syriza attempts to negotiate some form of official debt restructuring which could ultimately raise the risks of a Greek exit from the eurozone.

"But it could also lead to more substantial contagion effects on other countries and perhaps encourage the rise of other anti-austerity and even anti-euro parties across the currency union. In short, the risks of a re-ignition of the eurozone crisis have risen significantly," he says.

Better equipped

Others, however, believe Syriza's victory may have less of an impact on Europe than feared. Paras Anand, head of European equities at Fidelity Worldwide Investment, argues that Europe is far better equipped to withstand such political shocks than it was during the eurozone crisis of 2011.

"Arguably at the forefront of most investors' minds is the risk of contagion. It is, however, worth taking a step back and reflecting that the financial sector across Europe is in a significantly more robust position today than it was at the last 'peak' of the sovereign crisis in 2011.

"Over the last few years we have seen the major financial institutions across the region rebuild capital, reduce cross-holdings and undergo a rigorous stress test which implies that the ability for the sector to absorb shock is now substantially greater," Anand claims.

Rob Burnett, investment director and manager of the Neptune European Opportunities fund, adds that any volatility caused by Syriza's victory could in fact present a long-term buying opportunity for those interested in Greece.

"With Syriza having performed somewhat better than expected, the instant reaction in Greek equity markets will likely be negative, but we believe this ought to prove to be a long-term buying opportunity for the patient investor.

"Syriza have no incentive to cause further turmoil in Greece, which has experienced a great depression as extreme as the United States in the 1930s, with a 30% collapse in GDP. We expect Syriza's negotiation with the Troika will be difficult, but all sides are incentivised to come up with a face-saving compromise," says Burnett.

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