Economists and fund managers have raised concerns around Greece’s future as part of the European Union and the repercussions for equity markets, following the leftwing Syriza party’s victory in national elections this weekend.
With almost all votes counted, Syriza achieved a projected 149 seats in the 300-seat parliament - two short of an absolute majority - and has already begun talks with potential coalition partners in order to form a new government.
The party has previously vowed to fight austerity measures imposed on Greece by the EU and the International Monetary Fund, reviving the possibility of the country leaving the eurozone.
As reported by FTAdviser sister title Investment Adviser this morning, European equity markets dipped slightly from Friday’s highs, following the quantitative easing announcement from the European Central Bank on Thursday (22 January).
The Greek market itself was down by nearly 5 per cent and most other European stock markets have moved marginally into the red.
Experts have warned that the repercussions could be much more far-reaching than mere stock market movements however, so here are a few of those views:
Rob Burnett, investment director and manager of the Neptune European Opportunities Fund
Mr Burnett stated that while the instant reaction will be negative, it could prove to be a long-term buying opportunity for the patient investor.
He said: “As we have argued in the past, Syriza have no incentive to cause further turmoil in Greece,” he commented, noting that the country has just registered its first quarter of GDP growth in seven years.
“[Syriza leader] Alexis 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.”
Jonathan Loynes, chief European economist at Capital Economics
Mr Loynes pointed out that Alexis Tsipras has made efforts to reassure investors that the party does not want to leave the euro and is not intending to push the public finances back into deficit.
He said: “Nonetheless, a period of uncertainty and heightened market nervousness now seems likely. Greece’s current bail-out runs out in February and the country faces heavy debt redemptions over the coming months; so the first challenge is probably to agree some short-term extension of the programme.”
He stated that a prolonged stand-off with the Troika - as Syriza attempts to negotiate some form of official debt restructuring while not reneging on its promises to voters to cut taxes, raise government spending and increase the minimum wage - could de-rail the Greek recovery.
“There is already evidence that tax receipts have slumped in anticipation of a Syriza government - and ultimately raise the risks of a Greek exit from the euro-zone.
“But it could also lead to more substantial contagion effects on other countries and perhaps encourage the rise of other anti-austerity and even anti-euro parties across the currency union. In short, the risks of a re-ignition of the euro-zone crisis have risen significantly.”
Paras Anand, head of European equities at Fidelity Worldwide Investment
Mr Anand argued that there are reasons to believe that the impact for European investors and even for economic growth across the region may be more modest than feared.
He explained that in order to establish a stronger foundation, the Greek economy must move toward a broader base of tax revenue, which will only happen if a deep-seated culture of avoidance is addressed.
He said: “The emphasis of key creditors within the eurozone has already shifted from austerity to reform and Syriza may find greater support from the mainstream European parties than its ‘radical’ tag would suggest.”
Mr Anand challenged suggestions that Syriza’s victory will spur populist parties across the region to similar successes, stating that the party’s core political agenda will fall way short of the hopes of the more radical factions.
He also tempered fears of contagion risk, noting that Europe is in a “much more robust” position today than it was at the last peak of the sovereign crisis in 2011.
“That is not to say that tail risks within the eurozone have evaporated entirely, it is just to emphasise that the degree to which localised issues have the capacity to materially and immediately alter the risk premium throughout the region has clearly reduced.
“To that end, it suggests that returns are more likely to be driven by fundamentals going forward to a greater extent than has been the case at various (sometimes extended) points over the last few years.”
peter.walker@ft.com
