Greece appeared headed for a clash with Germany, the main sponsor of the bailout package that spared Athens from default during the financial crisis, after Syriza, a radical left anti-austerity party, placed first in Greek parliamentary elections.
Even before the final election results came rolling in, Jens Weidmann, president of the Bundesbank, the German central bank, said on Sunday evening that Greece would have to stick to its agreements if it wanted more financial assistance.
"I believe it's also in the interest of the Greek government to do what is necessary to tackle the structural problems there," he said in an interview with German public broadcaster ARD. "I hope the new government won't call into question what is expected and what has already been achieved."
The warning came as the euro, in apparent reaction to the Syriza victory, fell sharply. The currency used in 19 European Union countries was down 0.6 per cent, to $1.11 (U.S.), its lowest level in 11 years.
Traders and economists warned that the Syriza victory would rattle markets this week even if Greece's exit from the euro zone seemed only a remote possibility.
"Political tensions in the euro zone are set to rise sharply in the coming days and weeks," said Nicholas Spiro, managing partner Spiro Sovereign Strategy, a debt consultancy in London. "Right now, Athens and Berlin appear to be at daggers drawn."
Syriza, led by former communist Alexis Tsipras, 40, handily outpolled the ruling, pro-austerity New Democracy party that narrowly won the 2012 election and pushed through an austerity package – deep spending cuts and tax hikes – demanded by the European Union, the European Central Bank and the International Monetary Fund, often referred to as the troika.
Millions of Greeks blamed austerity for deepening the recession and pushing the jobless rate up to more than 27 per cent. Mr. Tsipras expertly tapped into the rage and despair of millions of Greeks.
Syriza has pledged: To strike a deal with the troika to write down the value of Greece's debt, which officially stands at 175 per cent of gross domestic product, the second highest in the world; go after the Greek "oligarchs" who either evade taxes or exploit loopholes that effectively ensure they are immune to taxes; use any budget supluses to fund public investments; establish a development bank to help small entrepreneurs; raise the minimum wage; and abolish newly introduced property taxes that are universally loathed by house owners.
"The vicious cycle of austerity is over," Mr. Tsipras declared on Sunday, before polls closed.
George Tzogopoulos, a political analyst and lecturer at the European Institute in Nice, France, said Sunday evening that he doubted Mr. Tsipras would have an easy time renegotiating Greece's bailout and austerity package, but may be able to secure some tweaks that would allow him to claim progress.
"The creditors, like Germany, have given so much money to Greece and they want this money back," he said. "I suspect there will be only superficial changes."
Before Mr. Tsipras can even launch into his debt-reduction and anti-austerity drive, he has to form a government and appoint a finance minister.
Picking a finance minister who can negotiate with the troika will be an early priority. A leading candidate is said to be the Greek-Australian political economist Yanis Varoufakis, who is fluent in English and has used recent TV appearances to vow that Syriza would move fast to end Greece's humanitarian crisis, renegotiate the austerity demands and go after the Greek oligarchs. "We are going to destroy the Greek oligarchy system," he said on Britain's Channel 4 News last week.
Greece's current bailout program has been extended to the end of February. If Syriza is not able to negotiate an extension of the program while it settles into government and launches an economic reform program, Greece's fragile banks could face a potentially debilitating deposit run. Greece will also have to find enough money to repay €1.4-trillion to the IMF in March and faces an ECB bond repayment in June.
Analysts and economists doubt any negotiations with the troika will go smoothly, meaning bond and currency investors might be in for a rough ride in the next six months. Elsa Lignos, currency strategist with RBC Capital Markets, said that investors "are being far too sanguine. … We think that international investors are underestimating Syriza's internal party divisions and the hurdles to the new parliament voting through a deal."
Negotiations to reduce debt promise to be even more fraught. Two EU countries, Finland and Ireland, have said they would rule out any outright forgiveness of debt, even if they are open to changing some terms, such as extending debt maturities.