Greek Election Results: The Relief is Temporary
A eurozone-friendly outcome in the 17th June 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 financial 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.
Download the complete commentary, with exhibits and implications for Europe
Glossary of Financial Terms
- Capital flight: Capital flight refers to investors selling securities in one country due to country-specific risks (financial or political instability) and investing in another country that is perceived to be safer.
- Peripheral eurozone countries: Peripheral eurozone countries are those countries in the eurozone with the smallest economies.
- Core eurozone: Core eurozone countries are those countries in the eurozone with the largest economies.
- Supra-sovereign: Supra-sovereign refers to organisations that transcends international borders, for example, the International Monetary Fund.
- Capital controls: Capital controls refers to measures taken by governments or central banks to limit the flow of foreign capital in and out of a domestic economy.
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