Business Leader: the financial markets are calm despite prospects of an anti-austerity anti-euro victory for the left in Greece which could heavily affect the UK in 2015

The Guardian

t is not hard to imagine leaders in Madrid, Lisbon and Rome fearing the bitter general election that is due to shape Greece’s future and play a key role in setting the continent’s economic course this year. The snap poll, called following parliament’s failure to elect a new president, will bring added instability to a eurozone already mired in economic stagnation and internal wrangling.

Yet last week, even as the anti-euro party Syriza scented victory and made clear it was preparing for a fight with Brussels, the financial markets remained calm. The Italian government refinanced €3bn (£2.3bn) of sovereign debt at an average interest rate of 1.89%, its lowest on record. It seems the spreadsheets that control market thinking have already priced in the prospect of Greece being cut adrift by its brothers and sisters. If the results of the election on 25 January show that Greeks are prepared to quit the euro unless they can extract major concessions, then the message seems to be: let them walk.

But while Brussels has succeeded in persuading fund managers there is a financial firewall sufficient to protect them from the consequences of Syriza’s ascendancy, the situation cannot be seen just in terms of money. A victory for Syriza will be viewed as a triumph for people power and, in the short term at least, a successful rebellion against the intellectually bankrupt pursuit of neverending austerity. There will be many in Europe who will cheer. At the very least, another period of uncertainty will begin, delaying the much prayed-for recovery in the eurozone’s economic fortunes.

It may prompt the European Central Bank (ECB) to cut the cost of credit with a first round of quantitative easing. ECB President Mario Draghi has hinted as much in his latest press conferences and interviews. But this belated move might keep Italian debt-servicing costs at all-time lows, it will do little to resolve the austerity argument. The first impact could be felt by the UK, which will hold its general election soon after the Greeks have their turn. A wounded and weakened Europe will take centre stage, bolstering Eurosceptic parties and harming Britain’s prospects as a trading nation.