Elections on the Aegean: Greece & Turkey

Global Perspective


May 25, 2023

Executive Summary

Greece and Turkey are currently considered emerging markets. Both countries recently completed the first round of critical elections and will hold second runoff elections in the coming weeks. From an investment perspective, the first-round results and the likely outcomes appear positive for Greece and negative for Turkey, respectively. We expect that Greece will be upgraded to investment-grade status, which presents a unique opportunity for investors that have higher risk tolerance and understand international investing. Moreover, the geopolitical winds favor Greece. Conversely, we view the unorthodox economic policies in Turkey as a major risk, which could lead to a major currency crisis, and would avoid investments there. 


For emerging markets broadly, we continue to recommend underweight positioning, mostly emanating from our negative view of the Chinese economic growth rate and surrounding geopolitical tensions with the West. Greece and Turkey are currently included within emerging markets indices, each representing less than 1% of the index.

In the aftermath of the Great Financial Crisis, Greece struggled to service its debt, and politicians dragged their feet to make necessary adjustments, resulting in massive budget deficits. Following parliamentary elections in 2009 won by the center-left PASOK party, Prime Minister George Papandreou and the new government revealed that Greece’s budget deficit was over 15% of gross domestic product (GDP), roughly double the prior government’s estimates. Credit-rating agencies downgraded the country’s sovereign debt to junk status in early 2010, spiking Greece’s borrowing costs. Furthermore, the European Central Bank (ECB)  limited the amount of Greek debt that it could buy within its stabilization programs due to the below investment grade credit rating. That ushered in a painful period marked by multiple bailouts by the International Monetary Fund (IMF), European Union (EU), and ECB, and a prolonged recession that shrank the Greek economy by about 25%.

Meanwhile, Recep Tayyip Erdogan has been either the prime minister or the president of Turkey since 2003. He has been steadily consolidating power, including a 2017 referendum granting him sweeping powers and allowing him to appoint top public officials. Subsequently, Erdogan has meddled with the central bank, muzzled the media, and intervened in the legal system. S&P Global Ratings lowered its outlook for Turkey's sovereign credit rating to negative from stable, citing massive inflation, currency instability, and the steep cost of rebuilding after a devasting earthquake.

What happened

Parliamentary election in Greece: Mitsotakis won a strong mandate

The election results were a resounding victory for the incumbent prime minister, Kyriakos Mitsotakis, and his New Democracy party, which garnered 41% of the vote. It was just the second time in roughly a half century that a Greek ruling party increased its vote share in an election. The far-left SYRIZA party, led by former prime minister Alexis Tsipras, finished in second place with just over 20% of the votes, 11% lower than the 2019 results. PASOK finished in third place, better than the 2019 results, indicating some voters returning to PASOK from SYRIZA.

Although each of the top three parties – New Democracy, SYRIZA, and PASOK – can cobble together a governing coalition, New Democracy will not, opting instead to have a runoff that it will almost certainly win an outright majority. Without New Democracy and minority party KKE, which publicly stating it won’t be part of any alliance, SYRIZA and PASOK don’t have the numbers to form a large enough coalition.

Presidential election in Turkey: Erdogan is expected to win in the second round

Erdogan received 49.5%, narrowly missing an outright majority during the first round of the presidential election. The opposition’s candidate, Kemal Kilicdaroglu, managed to fetch 44.8% of votes, not enough to unseat Erdogan. Third-place finisher Sinan Ogan, the nationalist third-party candidate that snatched just over 5% votes, announced his support of Erdogan for the second round. Given his strong showing in the first round and early polling figures, the second round will be a formality for Erdogan to remain president for another five-year term.

In parliament, Erdogan’s AK party got 267 seats, 28 seats fewer than in the prior election. CHP, the leading opposition party, received 169 seats, but a portion of the seats will be represented by its election-partner parties. The pro-Kurdish YSGP party captured 61 seats, while the nationalist party MHP, which usually votes with the AK party, added one seat to its previous 49 seats. CHP’s election partner, the IYI party, maintained all 43 seats it held.     

Our Take

Greece: One of the strongest recoveries in Eurozone 

In real inflation-adjusted terms, the Greek economy is almost 5% larger than its pre-pandemic (2019) level, and the growth rate surpassed many Eurozone peers, especially the larger economies. Nearly 80% of the Greek economy is comprised of service industries. While European manufacturing plants were hampered by limited energy supplies due to the Russia-Ukraine conflict, the services sectors, especially tourism, are enjoying a renewed boost from post-pandemic demand. According to estimates, more than 20 million Chinese tourists are expected to visit Europe this year, mostly in countries along the Mediterranean coast.

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