The crucial third-round of Greek Presidential elections is due Monday and there is a 60 percent probability the ruling coalition will fail to collect the 180 votes required to elect the nation’s president, leading to general elections in January, said Holger Schmieding, chief economist at Berenberg Bank in London.
If the Hellenic nation goes to polls in January, it would mean a period of political instability, which is bad for the Greek economy and the global markets. Reports coming out in the last couple of weeks show foreign-tourist bookings for summer -holidays have dropped considerably.
Separate reports suggest merger and acquisition deals that inject money into the private Greek economy are on hold due to uncertainties as well. If the country goes to elections it will be a temporary setback for the Greek economy, which may balloon into a real crisis after general-election results are declared in late January or early February, he noted.
The monetary-assistance program for Greece from the Troika – the European Union, the European Central Bank and the IMF, essentially ends on March 1, 2015. Asked how big the impact could be given the fact that Greece could be out of the program very, very shortly after the general elections, Holger said right through the campaign-period voters are likely to realize that they will be hit by a crisis if they move out of the Troika’s rescue program.
The looming termination of the support-program is likely to help Greek voters make up their minds. If a new government, led by the ultra-left parties, takes over after the elections, it would have to make-up its mind within days whether it wants to leave the eurozone to prevent flight of capital, he explained.
Markets in the peripheral countries like Portugal and Spain have remained largely unaffected, indicating lesser risk of a contagion despite the looming uncertainties. Asked if the authorities are going to consider this development when taking a call on helping Greece in future, Holger said this problem was frequently discussed in the recent past.
Eurozone’s systemic-risk was effectively fixed in the summer of 2012 after ECB President Mario Draghi announced the central bank would do “whatever it takes” to save the currency union from disintegrating.
Europe has been successful in containing contagion risk though Greece remains a big risk “onto itself” and a potential Greece exit would have modest impact on Europe or on the common-currency area. Europe can successfully contain a contagion from Greece with the help of the support-funds that have been already put in place and with a quantitative-easing from the ECB early next year. Nevertheless, it would be unfortunate if Greece exits the shared-currency after enduring so-much pain and advancing so-much in turning-around its economy, he observed.
Asked if that means Athens was “expendable”, Holger answered in negative. It would be great if Greece remained in the currency area. However, ultimately it’s Athens that decides about its continuance in the euro-area and other nations can’t decide on Greece’s behalf, he concluded.
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