By David Gow
“Crisis delayed” – as the BBC’s Chris Morris summed up on Today – is how virtually all political and market analysts view the outcome of Sunday’s extraordinary re-run Greek election. Stocks rose in Asia and Europe, yields on Italian and Spanish bonds fell, slightly, and EU political leaders headed off finally for Mexico for the G20 summit.
But, as we’ve seen throughout this crisis, relief could prove short-lived and, sure enough, quite a bit of those early gains on stock markets were swiftly pared. Antonis Samaras, the New Democracy leader, who won just under 30% of the vote, is what Der Spiegel calls “turncoat and great hope”: he has consistently rejected many of the terms of the bailout programme yet he carries the load of expectations from other eurozone leaders that Grexit is off the agenda for now. Not forgetting that New Democracy caused the crisis in the first place by systematically fiddling the books before Greek entry to the euro.
Samaras, whose party is affiliated to Angela Merkel’s EPP, has got to win concessions, an easing of the bailout terms, if he is to secure even medium-term support from his potential coalition partners, the social democrats in Pasok of Evangelos Venizelos – with whom he has clashed regularly – and the Democratic Left. There are hints, the vaguest of hints, even from Berlin, that such an easing will come. But don’t bet either on it or the degree of enthusiasm with which it is received.
As Elsa Lignos, senior currency strategist at RBC Capital Markets, says, according to The Times, “We will have messy negotiations before political reality forces the parties into some sort of agreement. Whatever government is formed will be fragile.” The paper also quotes Paul Mortimer-Lee, head of market economics at BNP-Paribas, as saying: “We may have dodged the bullet this time but where are we going to be in six months’ time. This is not going to go away.”
Here’s Michael Hewson of CMC Markets UK: “The challenges facing the Greek economy remain mountainous and the general feeling remains predominantly that the day of reckoning has merely been delayed. The outcome of the Greece election could prove to be one of those results that could end up being potentially toxic to the winner, given that the next government could well preside over Greece’s eventual exit from the euro.”
Wolfgang Schäuble, Germany’s pro-European finance minister, a fiscal hardliner, has signaled that the troika of EU, IMF and European Central Bank will quickly return to Athens to oversee the new government’s commitment to reforms – and this is the view that Merkel is taking to Los Cabos and the G20. At the same time, the near-27% vote for Syriza and the charismatic Alexis Tsipras, plus a distressingly sizable vote for the openly Nazi Golden Dawn, underlines that opposition to the bailout and the extreme austerity associated with it is very strong and runs very deep. Protests and demonstrations are very much on the Athens agenda.
Yet again, EU/EZ leaders have a very tight timeframe – ten days to their next summit at 27 in Brussels – within which they have to come up with some more convincing answers. Francois Hollande, now the French president has won his parliamentary majority, can push his moderate growth package with some more vigour but what the markets and Europe’s 500m citizens want is: a sustainable solution to what we at Nucleus have consistently and correctly analysed as a triple crisis of the banks, sovereigns and, above all, competitiveness.
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