Aug 28th 2015, Greece is heading to snap on September 20th but chances are high for a hung parliament!

Athens, Aug 28th

Greece, political developments. Greece is heading to snap on September 20^th but chances are high for a hung parliament!

·         Tsipras left Greece’s prime minister’s office after 7 month service. Greece’s President of Democracy Pavlopoulos appointed the Head of Supreme Court Thanou as the caretaker prime minister to run elections. Thanou becomes the first woman to assume the post of prime minister in Greece’s contemporary history and this is a historic development.

·         There are unconfirmed reports regarding the new cabinet showing that a) it will be pro-European and b) it will consists of ministers of significantly higher professional and/or academic background, compared to the cabinet of previous government.

·         In addition, there are unconfirmed reports which mention that four more polls show that the forthcoming elections will be too close to call. All four are showing a narrow gap between SYRIZA (left) and New Democracy (centre right). In any case, it is highly likely that Greece will face a hung parliament. More specifically they show:

o    SYRIZA’s popularity has gone south but it still ahead of New Democracy which is second; gap has been narrowed significantly

o    4 political parties i.e. Potami (centre) , KKE (Communists), Golden Dawn (neo nazi) and LAE (new eurosceptic political - left) but at single digit % level 

·         Meimarakis of New Democracy (centre right) accused Tsipras that is planning to escape from his responsibilities associated with the implementation of the MoU he signed. These allegations are linked  to Tsipras first pre-election interview when he mentioned that after elections, he would not cooperate with none of the pro-European political parties such as New Democracy (centre right), Potami (centre) and PASOK (centre left).

Risk assessment: Despıte allegations from several polıtıcal partıes as regards a) short duration of elections’ campaign and b) the selectıon of top judge Thanou as caretaker prıme mınıster (two other top judges’ posts are vacant), her appointment could be well-received by local public opinion due to three reasons: a) she is the first woman to assume the post of prime minister b) she brings along a significantly better cabinet with pro-European profile and c) she comes with the end of a 7 month period of high political uncertainty which deteriorated local economy.  

Considering the polls so far, it is highly likely that the forthcoming elections will lead to a hung parliament. This means that unless there is an agreement between SYRIZA and New Democracy to form a coalition government, Thanou’s government will serve for a certain period of time after elections. In general, the appointment of Thanou’s government represents a reduction of the overall country risk considering that Thanou will pursue the agreement of Greece’s political leaders which led to the 3^rd MoU.   

Greece, economic developments.

·         Athens Stock Exchange index closed at 627.02 (+0.69%) but volume remains at extremely low levels 27.03 mios euros. This is due to a) capital controls don’t allow investments in Greek equities by using deposits of Greek Banks. This means that this volume represents either foreign funds or funds from liquidation of existing equities or new cash.

·         Greece 2 year bond yield at 12.019% which is -0.526 vs. previous close or -4.19%, 52 week range 9.915% - 57.713%

·         Greece 10 year bond yield at 9.307% which is +0.181 vs. previous close or +1.97%, 52 week range 5.530% – 19.443%

·         The Council of State has ruled in favour of the mining company Hellas Gold and against previous government’s position which practically closed down the Halkidiki’s gold mines and made redundant 2500 miners. The decision suggests that the Ministry of Energy didn’t have a valid reason for blocking the project. It is still unknown what will be the new government’s stance on this matter.

·         The Association of Greek Industrialists issued a statement in which it stresses out the need that the government which will be formed after elections, will fully back the bailout program 

·         According to the Confederation of Greek Tourism, Greece will have another record year in tourism with total number of arrivals crossing the level of 26 mios and total revenues the level of 14.5 bios euros.   

Risk assessment: Local old fashioned political system is going through a tough restructuring which impacts economy. The appointment of Thanou government represents a positive development considering that is the result of a compromise of pro-European political parties and SYRIZA (after MoU).

Despite the derailment of state budget (especially on revenues front) and the significant deterioration of economic sentiment (at 80 from over 100 in 2014) and PMI (at 30 which is historic low), Greece’s economic outlook could return to growth trajectory. This will be assisted by a) the significant drop of price of oil compared to last year, b) the depreciation of eur vs usd compared to last year and c) the return of Eurozone’s economy to growth trajectory.

But it is of extremely high importance to mention that except public sector, the public administration and local political system, the private sector of economy needs to go through significant structural reforms focussing on a) competitiveness enhancement and b) internationalization of its strategy