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Jun
19
2012

Greek Election Results: The Relief is Temporary

By SEI Investment Management Unit

A eurozone-friendly outcome in this past weekend’s Greek elections merely puts off the eventual day of reckoning, as the country’s two basic problems remain unchanged:

  • It cannot pay back its debt under any conceivable scenario without debt forgiveness and/or fiscal transfers from other eurozone countries.
  • It cannot improve its competitive position in the confines of the currency union without severe downward adjustments to economic output and incomes.

As long as Greece remains in the eurozone, growth of its gross domestic product (GDP) will be negative for some time, which could increase its already sky-high unemployment rate and contribute to further political upheaval. Of the five political parties that won the largest share of the vote, only one—the communist KKE—currently advocates abandoning the euro and restoring the drachma.  Most polls indicate that a majority of Greek citizens want to remain in the eurozone. However, we continue to believe that Greece will eventually have no choice but to depart the single currency union.

We continue to hold a negative view on the euro and are still cautious on equities despite yields on safe haven fixed-income securities falling to record lows. As noted in our recent commentary “Big Divergences, Still Looking for a Catalyst,” we have yet to identify sufficient catalysts for a durable rebound. Thus, we expect markets to remain news-driven and volatile for the balance of the year. We are still relatively optimistic about the U.S. economy as exports to the EMU account for only about one percent of U.S. GDP (two to three percent for the broader European Union). As a result, we believe U.S. equities will remain a better bet for investors than international stock markets for the foreseeable future.

Download the complete commentary, with exhibits and implications for Europe

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This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the Funds or any stock in particular, nor should it be construed as a recommendation to purchase or sell a security, including futures contracts. There is no assurance as of the date of this material that the securities mentioned remain in or out of the SEI Funds.  Allocations are subject to change.

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Information provided by SEI Investments Management Corporation, a wholly owned subsidiary of SEI Investments Company.

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