Just when it looked like nothing worse could come out of the eurozone, Greek politics returned with a vengeance.
Last week, Greek Prime Minister Antonis Samaras brought the presidential election forward by two months, a bold move in which he seeks to win stronger backing from parliament ahead of a final review of the country's bailout program.
The trouble is that if he miscalculated, we risk being thrown back to what looks very much like the origins of the eurozone crisis. It all started with Greece, and with a political decision to revise the forecast for the 2009 budget deficit. This brought the whole issue of Greece's debt and deficit under the attention of investors, who sold off first Greek bonds and then those of other, similarly vulnerable eurozone countries.
European Central Bank President Mario Draghi managed to stop the contagion in 2012, when he pledged that the central bank would do "whatever it takes" to defend the euro. But what if it turns out this isn't enough?
The situation in Greece is: the government controls 155 of the 300 members of parliament but will need at least 180 votes in order to win the presidential vote (in Greece, the president is elected by parliament). There will be three rounds of elections. The first will take place this coming Wednesday, Dec. 17, the second will be on Dec. 23 and the third on Dec. 29. It is unlikely that a president will be elected in the first two rounds. Their significance will be to show the level of support for the third round. This will be crucial because the Greek constitution requires that, if a candidate does not get the vote, early parliamentary elections must take place.
If that ends up to be the case, the danger is that euro-skeptic, left-wing Syriza party wins, as the polls show it is ahead. After two years of relative calm in Greece (and in the eurozone), this raises the possibility of Greece exiting the eurozone (though it's pretty remote). Samaras, in the dramatic way Greek politics has become accustomed to, told a local newspaper: "We spat blood in our efforts to stop foreigners using the term 'Grexit' and now Syriza is bringing it back." The left-wing party replied by accusing him of enticing speculators to attack Greek assets.
Various media reports said Syriza wants a new round of debt forgiveness for Greece, to the tune of about 70-80%, citing the way Germany was treated in the 1950s when more than 60% of its debt was forgiven. Greece's debt is around €330 billion ($410.6 billion), of which 60% is held by the European Union via its EFSF (European Financial Stability Facility) and ESM (European Stability Mechanism) funds and 12% is owed to the International Monetary Fund.
A win by Syriza in parliamentary elections would "be headline negative, and would create political uncertainty given the unknowns of how the party would react to being in government," according to RBS's strategist Alberto Gallo. Greek bond yields jumped last week on the heightened uncertainty. The stock market fell by almost 13% last Tuesday.
A return of the Greek crisis would give another blow to the eurozone, via its impact on business and consumer confidence, Jennifer McKeown, an analyst with Capital Economics, warned in recent research. If there is contagion elsewhere in the eurozone and bond yields begin to rise, this would limit even more the room for maneuver that governments in the periphery have.
It's true that if we look at the details the situation doesn't seem so bad. Yes, Greeks are favoring Syriza in the polls, but they did so two years ago and yet a different government, which did not include the left-wing extremists, emerged from the actual vote. Opinion polls also show that Greeks on the whole favor staying in the euro, so any talk of a Grexit is very probably just talk.
The economic situation in Greece isn't as bad as it used to be. The country's economy exited its six-year recession in the third quarter when it expanded by 1.7%, making it one of the fastest-growing economies in the eurozone. Its funding needs are covered until February, according to officials, and the country has a primary budget surplus, meaning it has a surplus before taking into account the costs of interest on its debt repayments.
But Syriza's populist rhetoric is gaining supporters in a country with an economy that is 30% smaller than when the crisis started, where a quarter of families live on the poverty line and where unemployment is more than 26%.
For Societe Generale's analyst Michala Marcussen, the Greek presidential election is "the most significant tail risk for the euro area heading into year-end" and, more broadly, it serves as a reminder to investors about the political risks for next year. "Most important will be the Spanish general election due in December 2015. The surprisingly fast rise of the pro-debt restructuring Podemos party is clearly a concern," she warned.