Tsipras and 'radical' new Greek government to clash heavily with Europe
Although European finance ministers have ruled out writing-off Greece's debts, economists warned Greece's new coalition government could clash heavily with its European lenders and reignite a broader crisis across the continent.
On Monday morning socialist party Syriza agreed to form an anti-austerity coalition government with the right-wing Independent Greeks party (ANEL), with Syriza's leader Alex Tsipras to be sworn in as prime minister at 14:00 GMT.
The new government is expected to immediately begin renegotiation of the country's bailout loans with its 'troika' of lenders - the European Central Bank (ECB), the EU Commission and the International Monetary Fund (IMF) - and is likely to seek a restructuring of the government debt held by the European System of Central Banks.
Berenberg economist Holger Schmieding said the coalition with ANEL "could raise the risks of a big clash with Europe", though he said Tsipras's bargaining position was "weak" due to the country's shortage of money and the risk of €5bn of deposit flight.
However, ANEL are a staunchly anti-Europe nationalist party and Capital Economics' chief European economist Jonathan Loynes cautioned that the "protracted period of heightened uncertainty over Greece’s future inside the euro-zone and could threaten to reignite a broader crisis across the currency union".
Tsipras said before the elections that he would not look for a decision on debt restructuring and its associated timing before the summer.
However, Barclays analysts said, "we believe that his radical coalition partner is likely to prove a significant support to the more radical members of Syriza (more radical than Mr Tsipras has been in recent days/weeks). This could result in pushing the future Prime Minister to hasten talks with European partners."
Greece’s current bailout ends in February and, though the country's budget is close to balance, the government faces heavy debt redemptions this year and will run out of money quickly without more support.
"Beyond that though, the key question is clearly whether Greece and the Troika can reach an agreement on a restructuring of Greece’s debts which would make serious inroads into the debt-to-GDP ratio of close to 180%," Loynes noted.
Although euro-zone officials have previously signalled a willingness to consider another restructuring, Dutch finance minister Jeroen Dijsselbloem warned on Monday there was not much support for the further step of writing off Greece debt.
He said: "It's too early to say [anything about debt write-down]. We've always said we'd come back to debt sustainability issues"
He added: "The possibility of a further extension we will discuss today with the Eurogroup but also with the Greek government"
France's ECB board member Benoit Coeuré, said he did not rule out a rescheduling of the debt but insisted Tsiprias "must pay".
Furthermore, Christine Lagarde, the head of the IMF, said “we cannot make special categories for such or such country,” according to Le Monde.
With Greek tax receipts having already slumped in anticipation of greater tolerance from Syriza, she urged Tsipras to reform the country's longstanding tax issues.
The Eurogroup will meet today and economists noted that it will be the first occasion for the troika to send a message to Greece’s new leaders about the country's prior commitments.