Greek Election: What the Experts Say

What does the election of Greece's leftist Syriza party mean for the Greek economy – and the wider impact on the Eurozone? We asked professional investors and market makers

Morningstar News Team 26 January, 2015 | 10:41AM
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Greece's leftist Syriza party struck a deal Monday with a small right-wing populist party to form a government, after failing to win an outright majority in parliamentary elections.

"From this moment, I want to announce that we have a government," Independent Greeks party leader Panos Kammenos said.

"The Independent Greeks give a vote of confidence to Prime Minister Alexis Tsipras," he said. "The prime minister will go to the president later today so that he can receive the mandate to form a government," Kammenos added, after leaving a meeting in Athens with the Syriza party’s leader.

Tsipras narrowly missed earning an absolute majority in the 300-seat Parliament after defeating the conservative New Democracy party, led by Prime Minister Antonis Samaras. With 99.9 of the ballots counted, Syriza won 36% of the vote, giving it 149 seats in Parliament. The Independent Greeks garnered around 4% and 13 seats.

But what does this result mean for the Greek economy – and the wider impact on the Eurozone? We compiled professional investors and market makers comments below.

Darren Ruane, Head of Fixed Interest, Investec Wealth & Investment

Markets have been worried for some time about Syriza leading a Greek government due to its stated aims to increase public spending, raise the minimum wage and negotiate a debt restructuring with the EU and ECB. In addition, Syriza has not previously governed a country and the party is composed of many disparate left-wing factions. The uncertainty is likely to continue until a new government is formed and its policies are clearly established.

Market reaction this morning has been muted with Greek government bond yields 37 basis points higher at 8.55% for 10 year debt. By contrast, bond yields from countries such as Italy, Spain and Portugal are trading tighter as the outcome to the election was in line with expectations. The Greek equity market is lower by around 3% this morning.

Alastair McCaig, Market Analyst, IG

Europe has woken up to confirmation that the Greek people have voted in a new anti-austerity government. Syriza leader Alexis Tsipras and his Troika counterparts will now be practising their best poker faces as renegotiation of Greece’s debt and austerity requirements looks imminent.  Having spent so much time, effort and money trying to keep Greece in the family the ECB will be reluctant to see that all wasted, but any flexibility offered to them could be multiplied ten-fold should other nations follow their example. 

EUR/USD has looked nervous for some time but these latest developments have seen it trade as low as $1.1097 this morning and parity between the euro and the US dollar looks  increasingly likely. Quietly in the background, while the focus has shifted to European politics, US light crude has been drifting lower, regardless of already being oversold. This morning’s value of $44.70 maintains the momentum towards $40.

Rob Burnett, Fund Manager, Neptune European Opportunities

The instant reaction will likely be negative for Greece’s equity markets, but we believe this ought to prove to be a long-term buying opportunity for the patient investor. As we have argued in the past, Syriza have no incentive to cause further turmoil in Greece. Greece has experienced a great depression – as extreme as the United States in the 1930s – with a 30% collapse in GDP.

The US stockmarket fell over 80% from 1929 to 1932 and Greece's equity market returns have been similar, if weaker, with a 90% decline that began in 2007. Alexis Tspiras is taking power, with Greece having just registered its first quarter of GDP growth in 7 years. Tspiras is aware that he has a tremendous opportunity to gather the plaudits as the economy recovers. We expect Syriza's negotiation with the Troika, comprising the ECB, the European Commission and the International Monetary Fund, will be difficult but all sides are incentivised to come up with a face-saving compromise.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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