Everything You Need to Know About the Greek ElectionsPosted: June 15, 2012
This weekend is setting up to be pretty dramatic as the Greeks return to the polls to try and produce a government. Recall during the first week of May, the Greeks held elections that failed to produce a government and has thus lead to the latest market fears over Greece and the Eurozone as a whole.
The fine folks at UBS are out with a research note today with ten frequently asked questions about the Greek elections. Below are the questions and my answers.
1) Who’s winning?
No one. According to two different polls from the first week of June its almost dead even. New Democracy has a slight lead (26%) over Syriza (23%) and Pasok (9%) is taking up the rear. The important thing to know: 75% of Greeks want to remain on the Euro. Don’t expect a radical change in government.
2) Is the election a vote on Greece’s euro membership?
No. All three parties are saying they will not leave the euro. However, they are telling voters they plan to renegotiate the memorandum or understanding with troika.
3) Can Greece be out of the Eurozone as early as next week?
Yes, but this is a black swan event. Here’s what happens: Syriza must win the election, then its leader Mr. Tsipras must refuse to honor external debt and then it declares total default.
4) Will the election remove uncertainty about Greece?
What’s your best guess? Has anything Europe has done over the past three years “removed uncertainty?” Short-term performance aside an election won’t solve Greece’s problems.
5) What is the ideal election result-from an investment perspective?
It’s hard to say. Its possible that whatever party wins will likely try to renegotiate the MOU. This could spoke the markets into a sell off.
6) Will they [EU, ECB, IMF] pull the plug?
This is highly unlikely. If any of those organizations wanted Greece out of the euro, it would be gone by now. Stay rational.
7) Can Greece survive once its primary balance is zero?
The thought by many pundits here is that if Greece votes an anti-troika government, it will default on all debt and leave the euro. If it defaults, it will be no big deal because its government budget without interesting (aka Primary budget) will drop to zero.
8) Would Greece be better off without the euro?
Most likely yes. Economists argue that a weak currency will make Greek exports more competitive. However, the biggest drawback is Greece cost for imports on energy and food will go up.
9) What if there is another post-election deadlock?
With polls so close, this a likely scenario. According to UBS, if no government is formed by June 26th there will most likely be a national unity government that is supported by all three major parties.
10) What’s the medium-term perspective?
Greece’s euro membership will still be a speculation of uncertainty.
To conclude, Sunday’s election results and its aftermath is a toss up. Anyone claiming to have knowledge about the outcome is blowing smoke up your ass.
Ill have two predictions. The first is I think whoever is elected will try to renegotiate the MOU. Second, I think Greece will eventually exit the Eurozone. Getting the timing right will be the hard part.