Investment banks believe that the electoral victory of SYRIZA in Greece will not damage the peripheral markets, yet do provide a political contagion, because in other countries there are also unconventional political formations.
As expected, Syriza yesterday clearly won the Greek elections and today has announced a minority government with the right-wing party ANEL, shared with the formation of Alexis Tsipras their opposition to the austerity measures imposed by the troika (ECB, IMF and European Commission) the Hellenic country. The major investment banks analyze their reports today the future implications of the shift in the Greek government and the challenges that the executive will face. The general opinion is that there will be volatility in the country and that the contagion to other peripheral markets will be limited, though not political.
1. Formation of Government. Syriza has been quick to reach an agreement with ANEL Government (Independent Greeks) that allows you to achieve a majority in Parliament that separated only two seats. Of the two options available to it Tispras formation, the choice is, according to experts, the least favorable market. Barclays said in a report that the party centristra To Potami would have been the best choice for investors, because Syriza would have modulated something their demands, especially with regard to structural reforms and restructuring of debt. The agreement with ANEL at the forefront of the Greek executive in two configurations with nearly one point in common: their clear policy of austerity opposition. Experts from the British firm believe that “uncertainty will continue after three days to form an executive.”
2. Dealing with Europe. The Eurogroup meets to discuss the change on the political scene in Greece. The troika bailout Hellenic country was extended to two months, until February, but remains pending negotiations between Brussels and the Greek authorities could now change terms with the coming to power of SYRIZA. From Citi said the country faces debt maturities 7,000 million euros in June and July. Experts believe Julius Baer Tsipras immediately ask the troika (ECB, IMF and European Commission) renegotiate the bailout terms the country, especially in regarding interest and maturity. “A negotiation and can not be without breaks or threats by both sides, but do not assume, however, that this will destabilize the sovereign debt market,” say.
Meanwhile, from RBS believe that an initial agreement that leaves a soft restructuring of Greek debt will be reached. In his opinion, this agreement does not allow the sustainability of Greek debt unless the country to grow 3.5% until 2019, which considered unreal. Therefore, they think that the Government of Syriza could again force a new restructuring later. The firm believes that only a haircut of 33% would make the country’s debt sustainable.
RBS experts also point out that the victory of SYRIZA would endanger the ECB to buy Greek bonds from July its QE, because it must follow a rescue program. All this in a weak situation of the Greek economy, because from Barclays recall that in the last two months have fallen tax revenues of the country, forming a deficit of 2,300 million budget that requires further action. “Our baseline scenario is to prevail successful negotiations with the troika”, indicated from Citi.
3. Pressure for banks. The experts put the focus on the situation of the Hellenic financial institutions and the problems these could lead to a hypothetical lack of agreement between the Greek government and the troika to prolong their rescue. From Citi recall that in late December, Greek banks received 65,000 million euros of ECB funds, largely linked to the existence of a ransom. The experts at Barclays last week indicate that there exits the Hellenes bank deposits 10,000 million (the total is 164,000). Since December, departures by 20,000 million. In this context, the ELA (emergency liquidity fund ECB) for Greek banks will be crucial. Today all financial institutions helenas recorded declines in the stock market except Attica Bank, rising 20 percent.
4. Volatility in the Greek market. The electoral victory of SYRIZA cause instability in the Greek market. Today is already being felt in the sharp increase in the profitability of the sovereign debt of the country. At this point there is unanimity among investment banks. At least while the debate on restructuring Greek debt arises. The profitability of its sovereign bonds continue to rise and the Greek Stock Exchange only seems a good place for very speculative investments.
5. The ECB bumper. The contagion effect on the rest of peripheral markets will, according to experts, limited. So believe from Citi, where said the implications could be limited by the stimulus plan because they discard the ECB and Greece leaving the euro. They still think that the interests of sovereign debt will continue to fall and a flattening of the yield curve, ie that fall more profitability will occur (will raise the price) of long-term debt because of shorter maturities already run a lot.
6. Political contagion. Barclays notes that the following steps be followed closely Syriza especially in Spain, especially in regard to debt restructuring. In Citi emphasize that SYRIZA’s ability to achieve results with its policy approach or failure will be very pending other countries like Spain or Portugal, where there is also future elections. Investment banks believe that the electoral victory of SYRIZA in Greece will not damage the peripheral markets, yet do provide a political contagion, because in other countries there are also unconventional political formations.
7. Possible revisions rating On Friday of last week, Standard & amp;. Poor’s warned in a report by the possibility of lowering their sovereign ratings if the Eurosceptic parties take power. The risk rating agency included in the list of unconventional parties may access the Government to Syriza. The report notes that “our experience with sovereign defaults since 1998 (which includes Russia, Argentina, Uruguay, Jamaica and Venezuela) suggests that these do not necessarily benefit the long-term behavior of the economy.” In fact, he cites debt restructurings already undertaken Greece without these have served to lower its ratio of debt to GDP. S & P indicates that modify the job cuts in countries like Greece or Spain would reduce the profits of competitive
fondos@eleconomista.com.mx
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