The euro slid Monday after the left-wing party Syriza swept to victory in Greek elections, a major rebuke of austerity policies.
The euro hovered around $1.123 against the dollar, after earlier falling near the 11-year low reached last week after the European Central Bank announced a massive stimulus program. Greek stocks dropped more than 3% in early trading, while the country’s banks were harder hit.
Syriza’s victory was fueled by populist anger over severe austerity measures that critics felt prioritized payments to creditors over an economic rebound in Greece.
Greece accepted its first bailout in 2010, receiving €240 billion ($277.8 billion) in international aid to rescue its battered economy. In return, the country agreed to deep cuts in government salaries, tax hikes, a freeze on state pensions and bans on early retirement.
Nearly five years on, the overall economic picture is getting better. But life for many Greeks is much worse. Unemployment has soared and wages have fallen even as people are working longer — all of which fueled demand for change.
Alexis Tsipras, the Syriza leader who could be the next prime minister, has pledged to roll back austerity measures. But many analysts say he won’t be able to follow through.
On the campaign trail, Tsipras said he would cut taxes and force Germany and other creditors back to the bargaining table to renegotiate the terms of the bailout package. He said restructuring the debt would allow the Greek government to increase spending and boost the economy.
European leaders oppose this plan, and still maintain tremendous leverage over Greece. Athens needs an infusion of cash to make an upcoming bond payment, and the country’s banks need access to cheap financing from Europe’s central bank.
“Chances are that Tsipras will accept and embrace reality, quietly ditch his impossible promises and, in a Lula-style turn, keep Greece on the path of pro-growth reforms and fiscal sanity that brought the country back to growth,” wrote Holger Schmieding of Berenberg Bank in a research note.
Meanwhile, Greece’s debt continues to grow. Net debt was around 130% of GDP in 2010 according to the IMF — now it’s close to 170%. The economy has shrunk, so the debt ratio has increased, meaning it’s only getting harder for Greece to rid itself of debt — it may be nearly impossible.