European stocks began the week mostly flat on Monday, as Greek voters handed leftist party Syriza the keys to the Parliament on Sunday.
Monday, January 26, 2015
On the other hand, Greece’s ATHEX Composite Index fell 2.5%, influenced by the banks.
Now, analysts and investors await the next move – many have theorized that a Syrize victory would be the first step toward a Greek exit from the eurozone.
“Ultimately this is a test of whether [eurozone] governments wish to continue with the approach that the precedent of a country leaving the eurozone should not be set, while balancing this against the risk that giving even more quarter to Greece opens the door even wider to other countries to A) rebel against austerity, and B) seek debt relief,” Marc Ostwald, strategist at ADM Investor Services, explained to MarketWatch.
The election does not necessarily mean a Greek exit is imminent, but it will probably raise economic uncertainties until the market has a better understanding of the new Parliament’s goals.
Greece’s debt not going anywhere
Despite the endorsement of a radical leftist party in Parliament, Greece’s old problems will not simply go away. According to The Wall Street Journal, Syriza leader and possible new Prime Minister Alexis Tsipras will face a decision: leave the eurozone, as other leftist factions hope, or compromise with the European Union and take steps toward a bailout. Neither option is without challenges.
The bailout program is rigorous – Greece would have until the end of February to complete a review with inspectors. Even then, there is the 7 billion euros in bonds that terminate in July and August, and Greece does not have the finances to repay them.
Meanwhile, Tsipras will be under pressure from Syriza members and other leftist parties to bypass these negotiations and leave the eurozone altogether. It is telling that Syriza won 36.3% of the vote to the incumbent New Democracy’s 27.8%. A number of smaller, left-leaning parties also received votes, which means Syriza could form a coalition to guarantee a governing majority.
Whatever the path, it is likely European markets will respond in some way to Greece’s next move.
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