With elections behind them, Greece goes to bat with Germany

Greek elections signaled a desire among Greeks to stay in the eurozone, and today the leaders of the party that won this week's poll are expected to announce a government coalition that is ready to accomplish European Union reforms.

But the storm clouds are hardly gone. A larger showdown over whether ailing Greece can actually stay in the eurozone is taking shape between Germany and Greece.

German Chancellor Angela Merkel, the architect of European austerity, will in a sense square off with Greek forces, like the opposition far-left Syriza party, opposed to strict austerity attached to a recent bailout agreement. Ms. Merkel and Syriza now appear to represent the two "hard" bargaining positions, say analysts. Syriza and other anti-bailout parties in Greece received more than 50 percent of the votes in the June 17 election and are willing to think the previously unthinkable: Greece out of the eurozone.

Minutes after the vote in Athens, Greek officials and former prime minister George Papandreou said the nation needs up to two more years of assistance and growth packages to survive and to make public spending cuts, something that would require renegotiating the terms of the bailout. Ms. Merkel immediately said at the G-20 summit in Los Cabos, Mexico: “There won’t be any changes to the memorandum of understanding… The new government in Greece must fulfill their commitments quickly.”

The future of Greece will be fought out in the coming months on the middle ground between the Merkel and Syriza positions, analysts say – even as EU attention focuses more on Italy and Spain, the latter of which continued to rattle markets as its 10-year bond rate jumped over 7 percent.

Philippe Waechter of Natixis Asset Management Group in Paris said yesterday, “You have to now negotiate a bailout plan to give oxygen to a Greek economy grasping for air, and after a strong showing by the Greek far-left party Syriza.”

Merkel said two years ago that Greece should never have been allowed into the eurozone; Syriza leader Alexis Tsipras ran on the platform not of leaving the eurozone, but of not staying under the terms set in the current agreement.

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