International financial analysts and banking players appear to favour an early general election in Greece, due to the political and economic uncertainty that will continue in a protracted electoral period and may lead to a “lost year” for the economy.
There are concerns that electoral considerations may result in freezing necessary reforms and privatisation. That would have repercussions for the recovery of a fragile economy and for a problematic banking system. Moreover, it would send the wrong message to the markets at a time when Greece is desperately seeking access.
The current situation keeps borrowing costs high and undermines plans for bolstering Greek banks which are labouring under the crushing weight of non-performing exposures.
The value of bank shares has fallen as some hedge funds such as Lansdowne Partners and Oceanwood Capital Management are increasing their short positions in bank stock as the electoral period may delay the implementation of plans to tackle NPLs.
Pre-election return to markets
Meanwhile, high interest rates (3.8 percent for the IMF, 4.7 percent for the five-year bond which matures in April, 2019, and six percent for the ECB, with a June, 2019, maturity.
Expectations regarding Greece’s return to the markets led to the lowest yield on the five-year bond since September – 3.087 percent.
That return to the markets is viewed as a pre-electoral move designed to bolster the government’s image, but it is not an essential return with sustainable viable interest rates.
Tsipras’ minority government
Analysts now view PM Alexis Tsipras as the head of a minority government that cannot fully govern despite the recent confidence vote in which it received an absolute majority in parliament, as it will depend on ad hoc parliamentary majorities.
Citigroup sees positive risk
The forthcoming general election, which could be held in the spring, constitutes a positive risk for Citigroup, which questions whether the end of the Tsipras era is upon us.
Noting SYRIZA’s gains in opinion polls as compared to the 2017 low of 25 percent, it says that New Democracy maintains its lead with 37 percent.
That said, it opines that a conservative government led by New Democracy would be more market and business-friendly, although it may be difficult for it to achieve single-party rule.
Capital Economics sees May election
Capital Economics projects that after the marginal victory in the recent confidence vote Tsipras will opt for early elections in May, so as to avoid additional negative consequences for SYRIZA’s popularity from a second potential trouncing in the May European Parliament elections.
Though currently New Democracy garners 35 percent in polls as compared to SYRIZA’s 25 percent, attaining single-party rule is viewed as questionable.
JP Morgan puts its money on ND
The basic scenario for JP Morgan, on the other hand, is New Democracy managing to muster a parliamentary majority on its own, otherwise it will have to find a coalition partner (possibly the centre-left Movement for Change).
It believes an early election will be good for Greece and its economy as it would avert the dangers of policies geared toward electoral advantage. It says that a new government led by New Democracy may prove to be good news for the markets given its more business-friendly agenda.
