Mark Zandy is worried that Greece may yet prove the undoing of the euro as the country prepares for elections. Mr Zandy is chief economist at Moody’s Analytics. He fears the Greek opening Pandora’s box on January 25 could well release demons of nationalism eager to stir up trouble elsewhere in Europe. “The thing I worry most about isn’t so much Greece but whether what’s happening there affects the politics in the rest of Europe. If what’s happening in Greece is a catalyst for broader political change around Europe, I think that’s the real issue.”

After the Hellenic parliament on December 29 failed to elect a president in a third round of voting, triggering a constitutionally mandated snap election, yield on the benchmark ten-year bond jumped to over 9.7% (from its summer low of 3.5%) whilst shares on the Athens Stock Exchange plunged on average 11%.

As investors scurry for safety, anti-bailout party Syriza (Coalition of the Radical Left) seems to be running out of steam: its lead over the ruling liberal-conservatives of Prime-Minister Antonis Samaras shrank to barely three percent. Two opinion polls released on New Year’s Eve concur that about a third of respondents still prefer a coalition government erected around Mr Samaras’ liberal-conservatives to one formed by engineer-turned-rabble-rouser Alexis Tsipras of Syriza who is the preferred prime-minister of just 24% of Greek voters.

Mr Tsipras’ electoral victory is far from a foregone conclusion. Talk of a Grexit seems premature and may even amount to scaremongering. Pragmatism is set to save the day, albeit at the eleventh hour. Mr Tsipras last week surprised friend and foe by abandoning his earlier pledge to ‘tear up’ the bailout agreement and promised to keep Greece ‘firmly’ in the Eurozone. The more moderate stance the leftist opposition leader now embraces could help explain his party’s faltering popularity. It also signals Syriza’s readiness to pursue acceptance as a mainstream party and become a viable alternative to politics-as-usual.

Austerity Out

Some analysts brave enough to take the long view on Greece argue that a Syriza victory on January 25 may actually turn out to be a most profitable prospect. “Why not see Greece as part of the solution instead?” Krishna Memani, chief investment officer at Oppenheimer Funds, thinks a Syriza electoral triumph may well call into question the austerity dogma that has haunted Europe for ‘far too long’ and done much harm to its economic and social fabric.

“Austerity in Europe is counterproductive. Getting out of the deflationary spiral requires flexibility on the fiscal side. Portugal is not raising the issue, Spain is not raising it, nor is Italy. Greeks finally are so desperate, they are bringing it to the forefront, and maybe it will rally more energy this time around,” said Mr Memani in the Financial Times. A few pundits are recommending Greece as a buying opportunity, arguing that a Syriza-led government is more likely to nurture the country’s timid economic recovery than to derail it.

In the third quarter of 2014, Greece managed to register a 1.6% year-on-year expansion of its GDP and emerge from a six-year recession. Deflation remains persistent at 1.2% and a brake on growth. Unemployment levels still hover north of 25% and are not expected to come down any time soon.

For recovery to take hold, much now depends on European attitudes to Greece. Inflammatory remarks by EU commissioners, central bankers, and politicians will only serve to stiffen Greek resistance to austerity. Last month, European Commission President Jean-Claude Juncker caused a mild uproar after warning Greek voters against electing ‘extreme forces’ and adding that he would much rather deal with ‘known faces’.

Infamous Call

The Greek have yet to forget the infamous phone call placed by German Chancellor Angela Merkel on May 18 to President Karolos Papoulias in which she is said to have ‘relayed thoughts’ rather than dictate instructions regarding the course of action deemed most appropriate for the government in Athens to follow. Any cajoling of Greek voters is bound to be counterproductive.

Mr Juncker’s faux pas notwithstanding, the Greek have been remarkably sensible in their political choices, largely eschewing radical solutions to the mounting challenges and discarding easy copouts such as a return to the drachma. For all the hardship it brought, support for the euro remains surprisingly strong with close to sixty percent of those asked wishing to keep the common currency.

The concern over Greek contagion expressed by Moody’s Analytics’ Chief Economist Mark Zandy would seem unwarranted. Whilst on the rise across Europe, nationalist parties appear bound to an electoral ceiling of around 28% of voters. This holds true for France’s Front National, Belgium’s New Flemish Alliance, and The Netherlands’ Party for Freedom. As in Greece, in each of these countries an overwhelming majority of voters opts for more reasoned approaches to the enduring crisis.

However, what may well be coming to an end as the German-imposed and inspired politics of austerity that have failed to deliver a return to sustained economic growth. Rather than worry about which way the wind blows in Greece, investors could do worse than gear-up for fiscally less-constrained times and possibly even the return of a few happy days.

Cover photo: Alexis Tsipras of Syriza.

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• © 2015 Photo Alexis Tsipras by Kremlin
• © 2015 Photo Jean-Claude Juncker by Unión Europea en Perú