4 Things You Must Know about Greece’s Political Troubles

What’s up with this Greek drama?! Will this political instability bring sovereign debt concerns back? Here’s what you absolutely need to know.

1. Vote of confidence in current government set for next week

If you’re wondering what caused the sudden risk-off forex moves earlier this week, you should know that these were spurred mostly by Greek Prime Minister Antonio Samaras’ announcement of a three-round snap election to start on December 17, two months earlier than originally scheduled.

greek voteThis should determine whether there’s still enough confidence in the current government or if a change in leadership is needed. If a new leader isn’t elected by then, snap parliamentary elections will be in order.

Greek equities chalked up a 13% decline, their steepest one-day fall since the market crash in 1987, on the day the announcement was made. This selloff carried on in the days that followed, as investors worried that political uncertainty would usher debt troubles back in.

2. Last tranche of bailout funds in jeopardy

In fact, the fate of the next set of aid from the troika (European Commission, European Central Bank, and International Monetary Fund) hangs in the balance, as the Greek government and euro zone officials have recently agreed to extend the bailout by two months. This should give Samaras and his men more cramming time for the economic reforms required to secure the last tranche of bailout funds.

However, the troika also decided to impose additional conditions, including further cuts to Greece’s 2015 budget, which would mean more austerity measures for the country. Of course this was met with a lot of opposition, as rival political party Syriza took this as an opportunity to throw the blame on Samaras’ government.

3. Syriza Party leadership could complicate matters

For now, Syriza Party head Alex Tsipras appears to be gaining more support for his anti-bailout movement. After all, the Greek economy has just made it out of a six-year long recession in Q3 2014 but risks falling back in another negative growth cycle if more austerity measures are implemented.

Bear in mind though that Tsipras and his men are considered politically immature, as they have absolutely no experience in government. Should the snap elections result in a Syriza Party victory, forex market participants speculate that a stand-off between the new radical government and the troika might ensue, further hurting Greece’s chances of receiving much-needed financial aid.

4. Samaras victory positive for EUR?

With that, a Samaras victory could wind up being bullish for the euro, as it would guarantee that Greece could receive more bailout funds sooner or later. Other euro zone leaders are worried that a Tsipras-led government could bring Greek debt troubles back, reviving talks of a euro zone exit and potentially destabilizing the entire region.

Here are the numbers to watch out for: The Greek parliament has 300 seats, of which the current government needs to secure a 200-vote supermajority in the first two polling rounds. A do-or-die vote, which would lower the required majority votes to just 180 seats, could determine the fate of the Greek government and economy in December 23. As it is, the Samaras coalition holds 155 seats on parliament.

The decision could come down to the wire, especially if Samaras’ popularity continues to drop in the coming days. Any updates on this event could push euro pairs around next week so y’all better be ready for exciting forex price moves then. Stay tuned for next episode of this Greek drama!