Sunday, January 25, 2015

News: Anti-Austerity Party wins the election in Greece

Bloomberg provides this election update. Final official numbers are not in yet, but it appears that the Syriza Party will win convincingly. Now we wait to see if this will impact markets or if the result was already priced in to the markets. Beyond the short term market impact (if any) will be the big question. Will the Syriza Party eventually leave the EU and discard the Euro currency (the Grexit)?  This CNBC article explores those questions.

It's too early right now to tell if there is going to be an impact from this election result that reaches beyond Greece itself. Some analysts believe that a convincing win will encourage the Syriza Party to play hard ball and threaten to leave the EU if the Greek debt is not renegotiated on more favorable terms to Greece. They also suggest that other anti-EU political parties in other countries will get a boost and gain more influence in the other EU member nations. If all that does happen, we can expect the impact of this to reach out beyond Greece.

Other sources feel that once the election is over, the Syriza Party will be forced to accept the reality that Greece would be worse off it leaves the EU and the Euro (at least in the short term). They expect that after some perhaps cosmetic changes to the Greek sovereign debt (minor write offs and restructuring of the terms for example), Greece will remain in the EU and things will not change all that much. In other words that the situation will stay local to Greece and be managed without much impact elsewhere.

The election results pretty clearly indicate that the Greek people are tired of the EU/ECB/IMF imposed austerity program and vented their frustration in the elections. We will have to wait and see if any actual meaningful change happens though. At the time of this blog post, markets seem calm.

added note: Mohamed El-Erian gives his take on things on Bloomberg View

"Q: How are markets likely to react when trading resumes Monday?
A: If the larger-than-expected Syriza win is confirmed, and especially if it results in an absolute majority, expect a sell-off in European risk assets, including equities. High-quality bonds would be supported by flight-to-quality flows, resulting in lower yields (particularly on German bonds). And look for prices to fall and risk spreads to widen on bonds issued by European peripheral nations such as Italy, Portugal and Spain.
On the currency front, the euro will probably come under pressure, too, exacerbating the recent weakening to levels not seen in 11 years.
Greek markets are likely to be subjected to the greatest pressures, including a notable widening in risk spreads on sovereign and bank bonds. The question is whether this also translates into a significant pick-up in withdrawals by residents of bank deposits as well as capital flight.  If it does, Greek politicians would need to quickly take major steps to counter the threat of cascading market dislocations."

Update: early market reaction is minimal with the Euro down a little and US stock market futures some lower, but nothing significant. Unless there is a surprise from the newly elected Greek government, the markets don't seem to think this is a significant event based on the initial reaction.

No comments:

Post a Comment