By late Sunday on January 25th 2015, Greek voters decided to give power to the radical leftist party in their national election. The opposition party Syriza, led by the young Alexis Tsipras, ended the day with his victory speech stating “The Greek people have given a clear, indisputable mandate for Greece to leave behind austerity.”

The party formed a pact with ‘The Independent Greeks’ party in order to deliver a parliamentary majority, and together they are expected to curb the country’s policy against austerity and rejecting past bailout programs is their foremost priority. Specifically, Mr.Tsipras emphasized in his campaign his resistance towards the fiscal austerity policies demanded by Germany in return for a €240 billion bailout, which consists of a combination of tax increases and budget cuts.

So far, the country and its banks has been kept afloat by the European Central Bank and International Monetary Fund’s cash infusion bailout, and in return Greece needs to continuously reassure its creditors by improving its budget balances and economy through mechanisms such as the fiscal reform and austerity programs. The most recent deadline is July 2015 where the Greek government needs to find some way to repay bonds held by the ECB. Long answer short, if the government cannot payback, this may trigger massive capital flight and deposit runs even before the deadline. This will further reduce Greek banks’ liquidity and devastate the local financial market. On a macro level, since Europe’s banks and financial institutions are heavily integrated, the failure of Greek banks and other banking operations will trigger a chain effect, impacting the European and global financial market.

However, the good news is that this impact will not be as devastating as the former Greek Crisis: the ECB’s quantitative easing program is expected to quarantine the impact of a Greek default and provide confidence and assurance to the rest of the European financial market. If Greece were to default, then what might happen afterwards would be that Greece would need to re-establish its own currency and restructure its financial institutions. The most difficult part for the ‘new Greece’ would be to provide confidence for future investors and to rebuild its credit in the global financial market. Some may say that Greece should rebuild itself before re-entering the global market, however this is unlikely to happen because the country depends on imports for subsistence, and trade is crucial in bringing these essentials into the country. This may not be a bad thing in the long run, and would force the country to finally industrialize and improve on its manufacturing and self subsistence.

On the other hand, Germany definitely wants to avoid a Greek Exit and keep the EU whole. Not to mention if Greece were to default, Germany’s standing in Europe will be shaken, and along with many other Eurozone countries it will also face heavy losses from bailout loans. Politically, the success of the radical Syriza party may inspire voters to support radical parties in other Eurozone countries and start a trend of attacking austerity measures and renegotiating national debt. In addition, increased uncertainty and the weakening of the EU will significantly weaken the Euro currency and European trade.

The above analysis is based on the assumption that Greece will default in the way that Russia did in the 1998 Russian financial crisis, with a little twist in the end which will see Greece exit the EU. If Greece were not to default and instead succeed in renegotiating with Germany on its austerity and fiscal reform requirements, this will set a precedent for all other debtor countries to blackmail the ECB and Germany for money without reform requirements. As a result, the cost of bailout and lending will be much higher in the future, not to mention Germany will become a source of easy money for all Eurozone countries. Thus, it is very unlikely that Germany will give in.

Another plausible result could be that, if Greece does not defect and the current political equilibrium (in which the ECB and Germany keep supporting the country) remains, there will most likely be another Greek election not far from now.

Nothing can summarize the impact of the Greek election on the financial market better than David Cameron’s warning on his twitter, that the Greek result will “increase economic uncertainty across Europe.” To elaborate, some uncertainties may include the following:

– Euro currency risk: although the market has considered the likely outcome of the Greek election, future uncertainty on what the Syriza party would negotiate and how Chancellor Merkel will respond will further depreciate the Euro.

Why do I think this will happen? According to my previous analysis, if the Syriza party were to break the current political equilibrium, it will either be a successful negotiation with Germany or an exit from the EU. Either result will shake Germany’s position in EU and directly impact the strength of the EURO.

– Increase in stock volatility: Specifically for financial stocks that have central operations in Europe. Since most European banks will rely on injections from the ECB’s QE, risks that will impact the ECB and Germany will also affect these financial institutions. In addition, although the expected QE injection had somewhat calmed the European financial market from another panic, the confidence level is still very low and the risk of panic is high. Another capital flight from European banks like in previous Greece Crisis is still possible.

There are definitely more risks and implications from the election than the two that I just stated above, and this could be a topic for further analysis. Ultimately, although Greek citizens has made their decision in electing the Syriza party to head the state, whether or not there will be a move from the political equilibrium is still unknown.