Greece: Govt unlikely to emerge after 21 May election, second round will be needed
Metodi Tzanov
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New Democracy is the favourite to win the first round of the parliamentary elections on 21 May, but we think it's unlikely that the centre-right party will have enough seats to immediately form a government. This would lead to a second round of the elections, which will be held in early July, most likely. We remind that this year's elections in Greece are conducted under a dual electoral system. The first round of the elections will operate under a simple proportional system, while in the second round, the winning party will receive an incremental bonus of up to 50 seats in parliament, which is meant to facilitate the formation of a clear parliamentary majority. The bonus that will be received in a possible second round is on a sliding scale - if the leading party has over 25% of the vote it will get 20 bonus seats, if it has over 30% of the vote it will get 30 and if it gets over 40% of the vote it will receive 50. The bonus increases by 1 seat for each 0.5pp of the vote share, which means that the winning party would have to secure at least 38% of the vote to have an absolute majority in parliament.
ND emphasizes economic accomplishments in election campaign
At the start of the election campaign, the ruling party is emphasizing the economic progress that Greece achieved since 2019 as its primary accomplishment and ground for re-election. In a recent speech in Aegeleo, his own constituency in western Attica, Prime Minister Kyriakos Mitsotakis emphasized that his government kept all of the commitments made in 2019. He also emphasized the good state of the economy in recent years, the accomplishment of key economic reforms and the maintenance of financial stability.
Mitsotakis also spoke about the goal of achieving investment grade sovereign credit rating and said that this will happen if a strong and stable government emerges from the elections. So far Mitsotakis seems to be tying the achievement of investment grade credit rating directly to his re-election. ND's pre-election rhetoric thus focuses on the importance of political continuity and stability for achieving investment-grade credit rating and securing better economic prospects for Greece in the future.
The government is signalling that in terms of economic policy, they will maintain course if re-elected. Maintaining the level of robust economic growth in combination with further fiscal consolidation (by running primary surpluses and consistently reducing the government debt-to-GDP ratio) is the big promise of ND's re-election campaign. This is unsurprising, given that over its term since 2019, the government's biggest successes were precisely in these areas of economic policy. PM Mitsotakis also spoke of speeding up wage growth, but this is more of a secondary priority.
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Despite several high-profile scandals, SYRIZA still trails ND in the polls
Because of the positive economic developments in Greece since 2019, SYRIZA is finding it very difficult to frame its election campaign in economic terms. Furthermore, SYRIZA is itself committed to many of the key economic priorities that were followed by the ND government, such as fiscal consolidation and recovering investment grade credit rating. This is why the opposition leader has focused on perceived corruption and public sector incompetence during New Democracy's term. We remind that in the past two years there were three events that caused ND's polling numbers to suffer a significant drop. The first event was the perceived mismanagement of the very destructive wildfires during the summer of 2021. The government announced a major?cabinet reshuffle ?in light of those events and ND's electoral popularity started to fall from 40-45% in mid-2021, to about 35% in mid-2022.
Another major scandal, which SYRIZA tried to take political advantage of, emerged in August 2022, when it was revealed that the leader of the opposition party PASOK-KINAL had been?wiretapped ?by the intelligence service. PM Mitsotakis denied any severe wrongdoing on the part of his government and rejected increasingly vocal calls for a snap election by SYRIZA. Given the poll data at the time, it seemed that the wiretapping revelations did not cause a significant dent in ND's electoral popularity, despite SYRIZA's?severe criticism , calling the ND government "morally and politically compromised" and repeated calls for a snap election.
What has seemingly had a much more significant impact on ND's popularity was the tragic?train collision near Tempi , which caused the death of 57 people. ND's polling numbers immediately dropped by 3-5pps across all pollsters in the country and several protests of tens of thousands of people happened in large cities like Athens. SYRIZA jumped at the opportunity to accuse the government of negligence in the management of the railway system, adding to their previous criticisms. However, ND's loss did not become SYRIZA's gain, as the opposition party did not manage to improve its polling. Even in the fallout of the train crash SYRIZA continued to trail New Democracy by at least 3pps across all pollsters.
Second round will most likely be needed for a government to be formed
The latest polls to come out in April indicate that ND is in fact recovering in the polls and its lead over SYRIZA is once again in the 5-6pps range. In light of ND's consistently higher polling figures, SYRIZA's leader Alexis Tsipras recently started talking about a potential "progressive coalition", which could form an alternative government, alluding to a possible partnership with PASOK-KINAL and the smaller leftist party MeRA25. We note that PASOK-KINAL is currently polling at about 10% across all pollsters, which combined with SYRIZA's polling at below 30% means that even combined the two parties are unlikely to secure more than 150 seats for a majority in the 300-seat parliament. At most, they would secure 140, in our view. Any potential left-wing majority would thus also have to include MeRA25, which is still polling at 3-4%. KKE will surely not participate in such a coalition.
However, even if it is mathematically possible, we are very sceptical that a left-wing coalition will be formed, due to purely political reasons. The leader of PASOK-KINAL Nikos Androulakis has said that his party objects to any potential government which would be headed by SYRIZA's leader Alexis Tsipras. MeRA25 is also a very unlikely partner to SYRIZA, given the history between its leader Yanis Varoufakis and Tsipras. If a left-wing majority and government are to be formed, it must happen after the first round of the elections, which will take place on 21 May. Given recent poll figures, ND seems likely to maintain its first place, which would give it a 30-seat bonus at a possible second round of the election. This would likely allow the party of PM Mitsotakis to once again form a majority with PASOK or alternatively with the Greek Solution (EL). Overall, a ND-led government coming out of the second round is our baseline scenario, either with an outright majority or with the support of PASOK or of the Greek Solution. ND prefers a second-round encounter assuming a lead for the bonus seats, but a very close result with SYRIZA that would facilitate a left-wing coalition could force it to negotiate a coalition with PASOK from the first round.