Greece Poised for Panic as Election Goes to the Wire

Analysts are predicting jitters in the banking system as Greece goes to the polls this Sunday to elect another government which is forecast to be a close finish, with both major parties threatening not to form a coalition.

Although the Greek credit institutions have stabilized since the third bailout agreement with its creditors, a hung parliament – which is predicted in the polls – could lead to political and economic instability. Greece has faced years of austerity following its initial bailout by the creditors, known as the Troika – the International Monetary Fund (IMF), European Central Bank (ECB) and the Eurozone member countries.

We will continue our fight--for a government that stands up for, and stands together with the people #SYRIZA #Greece pic.twitter.com/9C5euPYfTv

— Alexis Tsipras (@tsipras_eu) September 17, 2015

The winner of Sunday's vote will need to oversee deep economic reforms required for a US$98 billion bailout brokered in August, recapitalization of the country's banks, and the unwinding of capital controls imposed this year to prevent an implosion of the financial system.

Greek Syriza anti-austerity party leader Alexis Tsipras has ruled out a coalition with the conservative New Democracy (ND) party led leader Vangelis Meimarakis. That being the case, political instability could have knock-on effects on the Greek banks.

Former Greek Prime Minister Alexis Tsipras, left, and the leader of the left-wing Syriza party, is blocked by microphone wiring as he tries to approach main opposition conservative New Democracy head Vangelis Meimarakis, right, to shake hands prior to a live televised debate at the state-run ERT television in Athens, Monday, Sept. 14, 2015. Greece is holding a snap general election on Sept. 20, 2015.

© AP Photo / Lefteris Pitarakis

There are fears that, if Syriza and ND cannot forge a coalition and no other alliance can be made, Greece could be in for its third general election within nine months.

Political Impasse

Tsipras, struggling to rally disgruntled leftist and center-left voters, has said it would be an "abnormal alliance". He has accused ND of being part of a corrupt political system that helped plunge Greece into the debt crisis. 

The two parties are expected to clash on issues such as specifying reforms, leading to delays in their implementation, and on immigration.

New Democracy is in favor of labor market liberalization, wants a smaller state and tighter border controls to fight illegal immigration.

Syriza wants collective bargaining to be reinstated, more EU funds and, if possible, voluntary relocation of undocumented migrants.

All of this could endanger the reforms demanded by the Troika, which want to see a complete revamp of the Greek state pension system and a major shake-up of its tax system, as well as public sector cuts.