A Greek Tragedy in the making?
Volatility is to be expected as Greece is facing a snap general election with a potentially disrupting and damaging outcome, says Tim Cockerill, investment director at Rowan Dartington
The third and final round of voting to elect Stavos Dimas as Greece’s president failed to gain the majority required in Parliament today. Dimas was the only candidate and the choice of Prime Minister Samara.
With him failing to get the required majority at the third attempt Greece will now face a snap general election, likely to be on the 1st February. The fear that many have is the radical left party, Syriza, which is anti-austerity will gain power and put Greece on a confrontational path the with ECB, EU and IMF.
Polls do indicate they will gain the majority of the votes although not enough to control Parliament.
This will raise the spectre of Greece leaving the Euro, defaulting on its bonds and heading back into recession none of which is viewed positively by the market unsurprisingly.
Perhaps the biggest bugbear in all of this is that the Greek people, when asked, appear not to want an election, they want their politicians to stop bickering and to talk to one another.
Having gone through six years of recession and only now seeing the start of a recovery, no-one is keen to upset the apple cart. And yet the polls suggest Syriza will get the most votes which suggests perhaps that quite a few Greeks do want to upset the apple cart, after all unemployment is over 25%.
Stock markets appear to have taken the news in their stride so far, there was a brief sell-off which lasted no more than a few minutes and then the market regained its poise.
This is interesting because an anti-austerity Parliament in Greece could potentially be very disruptive and damaging – if they default on loan payments this will put pressure on banks, albeit they are much stronger today than when the crisis unfolded – a Greek exit from the Euro could be on the cards and this would then raise the issue of other peripheral countries willingness to stay with the Euro and austerity.
Mario Draghi has of course said the ECB will do whatever is needed to generate growth in Europe and keep the Euro together – does this mean stepping up in this type of situation?
All eyes are now on Greece and the voting intentions of the people which will be very closely watched…..if Syriza don’t get enough votes to control Parliament then a collation has to be formed; this takes time and has an uncertain outcome which markets don’t like.
And then the colour of the coalition will be critical to Greece’s future. Let’s hope the Greek people seek the least disruptive route out of this, which would suggest keeping with the current order but with the anti-austerity Sirens sweetly singing, the lure may prove too much! With each twist of the story as the election draws near, markets will react – expect volatility and perhaps a tragedy.