Syriza Party’s Win Will Keep Markets on the Edge

The risk of a sovereign debt default in Greece has increased. The far left anti-austerity party Syriza has won the elections. This victory will increase the probabilities that Greece will exit the Eurozone. This will keep the global financial markets on the edge today.

There is now a period of uncertainty in the Eurozone and the global financial markets. With the rise to Syriza to power, comes the heightened risk of Greece calling it quits with the Eurozone and European Union (EU). They took 149 of the 300 seats in the Greek Parliament. Syriza took 36.5 percent of the vote and a commanding 9 point margin over the conservative New Democracy Party.

Markets did not Expect this Big of a Victory

These elections results, the strength of the Syriza victory, means Greece can default on its debt. The country owes some $350 billion to government institutions and investors and they have a €3.5 billion euro note in July coming due and another €3 shortly thereafter. This risk could cause risk-off selling in the global financial market today as we know Syriza will demand to renegotiate terms of the Greek debt.

This morning, stocks in Asia were mostly lower but have recovered some losses. Futures for the US markets show a wild start. Futures on the DJIA are down around 100 points at the time of this report.

The Unknown will Shake Markets

Thanks to the margin of Syriza’s victory, they do not need a large coalition to form a government. This means the chance of a moderate partner, one with strong Euro ties, is not very good. This is causing uncertainty as nobody knows what is going to happen next. While, it is a strong possibility the country can leave the Eurozone, there is disagreement over the fallouts of such a move.

We could now see contagion effects in other countries like Portugal, Ireland and Spain. Not to mention England. There are many anti-Euro parties in these countries and throughout the common currency bloc.

However, the threat of contagion to the peripheral countries is not a bad as it was in 2012. Portugal, Ireland and Spain are in better shape. The defense mechanisms are better, since the bailout fund came into being. There is a better banking union and a more aggressive European Central Bank.

Question is, is this good enough?