With almost 99.8% of votes counted, Alexis Tsipras’ party had accrued 36.3% of the vote, well ahead of ruling centre-right party New Democracy’s 27.8%, giving Syriza a projected 149 seats in the Greek parliament.
The figure is two short of an overall majority, and many believe Tsipras – who wants to write off half the country’s debt yet keep it in the euro – will moderate his demands once in power.
However, initial reports suggest Syriza may form a coalition government with the hardline-eurosceptic ANEL party, raising early concerns over the country’s future relationship with the single currency area.
Fellow eurozone members have suggested there is no room for manoeuvre on Greece’s current bailout agreements or debt pile, but with Tsipras committed to ending “the vicious circle of austerity”, prolonged uncertainty now seems likely.
The euro fell below $1.11 in early trading, a fresh 11-year low, before recovering to trade flat on the day at $1.12. Greek ten-year bond yields rose 33bps to 8.74%.
“ANEL is a rather radical (anti-“troika”, anti-Europe) party and could be a worrisome outcome for markets,” Barclays analysts said.
“We think uncertainty will persist well past the three days the constitution allows to form a government.”
Capital Economics’ chief European economist Jonathan Loynes, meanwhile, said Syriza’s victory threatens to “re-ignite” the eurozone crisis.
“[A stand-off with creditors] could also lead to more substantial contagion effects on other countries and perhaps encourage the rise of other anti-austerity and even anti-euro parties across the currency union. In short, the risks of a re-ignition of the eurozone crisis have risen significantly.”
Syriza’s initial negotiations will focus on the €4.3bn in funding which falls due in March: in effect, a short-term extension of Greece’s current bailout programme.
The country requires a further €24bn for the remainder of 2015-16, but most observers expect protracted negotiations on debt restructuring between Greece and the ‘Troika’ administering its bailout package – the International Monetary Fund, European Commission and the European Central Bank.
Greek bonds will also be excluded from the ECB’s QE programme until at least July because of the amount of the country’s debt already held by the central bank.
Threadneedle’s chief investment officer Mark Burgess said: “Germany may hope that Syriza will soften its stance once it is in government. If Syriza does not cooperate, Germany may feel that it can ask Greece to leave the eurozone.
“Unfortunately a risk premium would need to be applied if this were to happen, even if other peripheral countries (such as Portugal) decided that they wanted to keep the single currency.”
Greece received a €110bn EU bailout in 2010, the conditions of which were deep cuts in a very unpopular austerity drive which triggered widespread protests. This was followed by a further rescue package totalling €130bn in 2012 as policymakers tried to prevent the country’s exit from the eurozone.
The country has struggled through a severe recession and years of high unemployment – its economy has contracted 25% since 2008. It returned to growth in the second quarter of 2014 after six years of economic decline.
Greece raised €3bn when it returned to the bond markets in April 2014 for the first time since the financial crisis, with a bond issue which was eight times oversubscribed.