Greece’s general election looks set to deliver a more cohesive administration with a renewed mandate for the country’s third bailout agreement, slightly reducing risks to programme implementation, Fitch Ratings says. But the government’s ownership of the programme is likely to remain less than whole-hearted, and its negotiating stance unpredictable.

After neck-and-neck polling before Sunday’s vote, the final allocation of seats was remarkably similar to that of January, with Syriza (145 seats) likely to form a second coalition with the Independent Greeks, with a slim majority of 155 of 300 seats.


This would be seven seats fewer than in January, but the result masks a significant shift within Syriza. Twenty-five MPs from the left of the party broke away before the election but failed to pass the 3% vote-share threshold to win any seats.


The splintering of the more vehemently “anti-memorandum” faction of Syriza and the renewed electoral mandate for Prime Minister Alexis Tsipras reduces the immediate political uncertainty that had arisen with the decision to call snap elections. It should also be possible to continue to rely on the votes of some of the centrist parties for key reforms, if necessary.


The election will have delayed technical work and political decisions necessary for the completion of the first programme review and the associated release of official funds. The government’s funding position is sufficient to withstand some delay and the most time-sensitive part of the review, the comprehensive assessment of the Greek banking sector, is already under way. European and Greek authorities are aiming to recapitalise the domestic banks before year-end.


The first review is the most onerous in terms of conditionality, including contentious pension and tax reforms and a supplementary budget, but its successful completion would unlock at least modest official-sector debt relief, a key goal for the government.


But the risks to the programme’s success remain high. Voter turnout fell to around 55% on Sunday, suggesting more disillusion with the political process after five general elections in six years, and in the face of stringent policy conditionality. Political rhetoric still contains an anti-austerity element notwithstanding Syriza’s official commitment to implement the programme. For example, Tsipras said following Sunday’s vote that Greece can recover from its economic crisis “through tough work,” but that “the Greek people are synonymous with resistance and dignity.”


It will therefore take time for trust to be restored between Greece and its creditors, which increases the risk of delayed programme reviews. Meanwhile, political and popular backing for the third bailout appears ambivalent, making that the government’s negotiating stance unpredictable.


We upgraded Greece’s rating to ‘CCC’ from ‘CC’ on 18 August, following the agreement of a three-year European Stability Mechanism programme. A repeat of the prolonged breakdown in relations between Greece and its creditors leading to another funding crisis could bring the rating back down. A record of successful programme implementation could lead to an upgrade, as could economic recovery, further primary surpluses, and official-sector debt relief.