Yes, Greek Prime Minister George Papandreou may have survived the confidence vote earlier this week.
However, his work is far from over, as the government still needs to agree on a new 28 billion EUR austerity package. As it is, there’s one man standing in Big George’s path. And his name is…
No, he ain’t Antonio Bandera’s long lost brother, but he is trying to swoop in like Zorro and save the Greek economy from Papandreou’s Pasok Party’s “economic medicine.”
You must be thinking, “Who the heck is this dude?”
Samaras is actually the leader of the Greek opposition party, the New Democracy party. He graduated with a degree in Economics from Amherst College in 1974 where ironically enough, he was roommates with Papandreou!
Twenty-seven years after debating who was better at beer pong and King’s cup, Antonis’ and George’s fates are once again intertwined. Recently, Samaras has vowed that his party will not budge, and will continue to vote against the latest proposed austerity package.
Samaras argues that the aggressive austerity measures would further hamper consumer demand at a time when the economy is struggling and when high tax rates are burdening the public.
Samaras has warned about the lack of liquidity and its potential effects on the economy, saying that it could lead to decreased private and government spending, the lack of foreign investment, and tax evasion.
Instead, Samaras believes that the government should chill on its value-added-tax (VAT) and corporate tax rates in order to get the economy up and running.
Unfortunately, Antonis doesn’t have the IMF or ECB on his side, nor does he have Anthony Hopkins to teach him how to yield a sword. According to economic hotshots at the IMF and ECB, Samara’s proposals are “unrealistic and incompatible” with their plans.
Looking ahead, Samaras and the New Democracy Party’s lack of cooperation could spell trouble for Greece down the road. While the Pasok party has enough seats in parliament to vote in favor of the new austerity measures, Greece could still find it difficult to access more funds.
The reason for this is that continued political instability will stick out like a sore thumb to international rating agencies. They may point to the lack of unity in the Greek government as a reason to downgrade Greek debt, which would make it even more expensive for Greece to get extra cash from the markets.
I believe the markets understand what’s at stake here, and that’s why the euro didn’t exactly rally once news broke out Papandreou survived the confidence vote.
After rising to as high as 1.4440 early last week on news of Papandreou’s victory, EUR/USD later tumbled down the charts and eventually closed below the 1.4200 handle. Over the last couple of weeks, EUR/USD has consolidated and is now trading within a symmetrical triangle.
Later this week, Parliament has to make a decision before June 30 on the austerity bill. With the Pasok party holding a majority of seats in government, chances are that the bill will be passed and this should give the euro some nice support.
However, if Samaras sticks to his word and continues to lock horns with the Pasok party, it could spark another wave of risk aversion. Even though Samaras ain’t exactly a political mainstay, the markets know that he’s not backing down could pose big problems for Greece.
If talks do fall through, we could see EUR/USD break lower from the symmetrical triangle and below the 1.4000 psychological handle.
The markets are in a very delicate state right now, and that’s why the next two weeks will be very crucial for the euro. I’ll be sure to update y’all with any developments on this issue so stay tuned!