Third Greek Bailout Gets Its First Test With Sunday's Elections

With the most important Federal Reserve meeting in recent history on the minds of every investor and trader in the world right now, it is easy to miss other potentially impactful events that could have a lasting effect on global markets. Greece is about to go to the polls for the third time in four years on Sunday, and the consequences could be very deep, endangering Greek eurozone membership once again and pushing the monetary union into disarray for a fourth time.

The question isn’t who will win the vote or even who will come in second. Polls seem united on an even battle between the leftist Syriza party and the center-right New Democracy, neither of whom have any choice nor intention to break with the bailout deal signed this past summer and passed, more or less, by both of them. Rather, the question is who will come in third and fourth, who will be kingmaker, and how cooperative these potential small coalition partners will be in keeping the deal intact.

On that note, Citi Research has issued an ominous note on what they believe will be the consequences of yet another new Greek government:

An unstable coalition government (encompassing two or three smaller parties) is unlikely to remain compliant with the programme targets and deadlines, potentially delaying discussions over Greece’s debt restructuring and (as a result) IMF (financial) involvement in the third bailout.

The party that causes particular concern is the Neo-Nazi Gold Dawn party, which could take home 10% of the vote this time around. Former Greek Foreign Minister Yanis Varoufakis has even eschewed the term “neo-Nazi” to call Golden Dawn bona fide Nazis straight out, and the party seems very adamant about throwing out the third bailout deal and even EU membership. Usually this can be chalked up to rhetoric, as was apparent even with the extremely anti-bailout Syriza party. But when dealing with Nazis, all bets are off.

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And yet, sadly enough, Golden Dawn’s actual positions on anything may not even matter. If Golden Dawn has a strong enough showing on Sunday to actually become the kingmaker, the dizzying historical twist of Germany funding a government that includes Nazis in its coalition may be too much for Europe to bear. What will Germany do then? Demand new elections again so German taxpayers won’t have to fund Golden Dawn?

Conservative Greek MP Fotini Pipili was quoted in The Guardian: “I am afraid. For the first time we have no idea what this election will bring. What we do know, however, is that Golden Dawn is going to do well, and for the serious minded that is a very worrying thing.”

Once liquid Greek bank shares like National Bank of Greece S.A. (NYSE: NBG) already have been reduced to penny stocks, even with a third bailout already passed. The better Golden Dawn’s showing the, worse off Greek stocks likely will be.

All this, mind you, is happening in the midst of a possible first rate hike in a decade (if not Thursday, then likely in October or December), more Russian involvement in Syria and a European refugee crisis the likes of which Europe has not seen since the Cold War. The fault lines are everywhere, and maintaining the current political/financial status quo of pseudo-stability from here seems a difficult task indeed.

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