Why were the elections important?
Finally! After days and days of anticipation, the much-awaited Greek elections are over!
You see, the elections held over the weekend were a big deal for the Greeks since their government was stuck in a deadlock for more than a month. Recall that Greece held Parliamentary elections back in May but neither of the political parties involved was able to secure a majority of the seats.
Prior to the most recent elections, Greece’s fate hung in the balance as the political parties sat on opposite sides of the debt bailout. On one hand, PASOK and New Democracy Party favored austerity measures, which were a crucial requirement for the bailout funds to be secured.
On the other hand, Syriza party leader Alexis Tsipras was adamant about scrapping the spending cuts and the terms of the international bailout entirely. Talk about being extremely radical!
While this anti-austerity sentiment appealed to most Greek citizens who were already suffering the brunt of Greece’s belt-tightening measures, many were concerned that the inability to get bailed out would result in being kicked out of the eurozone.
Talks of a potential Grexit soon morphed into speculations of a full-fledged eurozone breakup, which threatened the very existence of the euro.
Election results
Much to everyone’s relief, early official results revealed that New Democracy won the recent elections as they earned 30% of the vote, which translates to 128 seats of out 300 in the Greek Parliament.
Political analysts say that a pro-austerity government is virtually a done deal since PASOK only needs to get 13 more seats.On top of that, New Democracy Party leader Antonis Samaras already announced that they will be working hard to keep Greece in the eurozone. According to him, the votes clearly showed the Greek people’s desire to keep the euro and to stay on the path of growth and stability.
Market reaction
Pro-austerity camps securing a majority was the outcome that markets wanted to see. And so, it was no surprise to see EUR pairs gap up at the start of the week. EUR/USD opened at 1.2700 on Monday after just barely closing around 1.2650 on Friday.
Why you shouldn’t be too excited
Although it seems all good in the euro’s hood, for now, you shouldn’t get too excited about buying the shared currency just yet. Here are three reasons why:
1. There’s more political drama in Greece.
Since it didn’t win an outright majority, New Democracy only has three days to talk to other parties and organize a coalition government.
As if that’s not difficult enough, it has been reported that PASOK leader Evangelos Venizelos said that he won’t join the coalition unless Syriza gets to be a part of the new government too. Yikes!
Many think that the PASOK leader is only bluffing. Nonetheless, the news has spurred doubts over the new government’s ability to implement the austerity measures Greece promised to the Troika when it accepted its bailout packages.
2. Nothing has changed.
Sure, most Greeks voted to stay in the eurozone. But the elections didn’t really change anything.
The country still has a mountain-load of debt. Heck, it has to come up with about 325 billion EUR a year to pay its obligations to its creditors.
Not to mention, Greece’s unemployment rate remains stubbornly high at 22.6% which is seen to rise even more as the economy is predicted to post negative growth of around 5-6% by the end of next year.
With those figures, a lot of investors wonder how much more budget cuts the Greeks could take until they ask for another bailout.
3. Bigger troubles lie ahead.
Although a few market junkies paid close attention to the Greek elections, there were those who paid Greece no mind as they were too busy worrying about the euro zone’s third and fourth largest economies–Italy and Spain.
Yields on 10-year Italian bonds rose to 6.07% from 6.02% last week. Meanwhile, those of Spain jumped to its highest level since it joined the eurozone at 6.99%.
As borrowing costs creep closer to the 7% level that forced Greece, Ireland, and Portugal to ask for bailouts, there are some rumors that the two countries could be the next in line to ask the Troika for funds.
Don’t get me wrong. I don’t mean to rain on the euro bulls’ parade by not being excited about the outcome of the Greek elections.
But in this not-so-old man’s opinion, the situation in Greece, as well as the eurozone, is going to get worse first before it gets better. And I don’t really intend on holding my breath until that happens.
