Aug 26th 2015, Greece’s fluid political landscape impacts economy

Athens, Aug 26th

Greece, political developments. Greece is heading to snap elections; political landscape may change dramatically up to elections; SYRIZA’s popularity may take a nosedive.  

·         chances as regards elections date are now in favour of September 20^th; SYRIZA’s leadership insists of a fast track elections campaign; New Democracy (centre right), Potami (centre), PASOK (centre left), LAE (eurosceptic left) are in favour of September 27^th as regards elections date.

in addition, President of Democracy P. Pavlopoulos may not call a meeting of party leaders on Thursday before appointing a caretaker prime minister. This is due to objections raised by Tsipras and coalition partner P.Kammenos.

·         a new poll published yesterday by the market research company ‘Interview’; it shows SYRIZA’s popularity nose diving to 24% (from 37%) while New Democracy (centre right) following at 22%. This is the second poll showing a narrow gap between SYRIZA and New Democracy.

the political turmoil within SYRIZA continues; both ministers of Shipping Policy (Dritsas) and Migration Policy (Christodoulopoulou) announced that they won’t participate in the forthcoming elections. Additionally, unconfirmed reports indicate that the Finance minister (Tsakalotos) and previous government’s spokesman (Sakelaridis) who are both members of party faction named ‘movement of 53’ won’t participate as well.

the rupture within SYRIZA is more severe at grass-roots level where numerous activists and middle level executives submit their resignations and either will abstain from elections or join the newly formed Eurosceptic party LAE.

probabilities are higher that SYRIZA’s popularity will nosedive down to the region of 20-30% rather maintaining the 30-40% which was before the agreement of July 13^th.

·         the Speaker of Parliament Ms Constantopoulou continues to convene Parliament without the approval of political parties except the newly formed Eurosceptic party named LAE. For the first time in Greece’s parliamentary history, there was a parliamentary meeting of 16 MPs only. She also called the Governor of Bank of Greece Mr Stournaras to appear before Parliament’s Institutions Committee, without the approval of the majority of the Committee. Mr Stournaras rejected this call. Ms Constantopoulou renewed a call to the Governor of Bank of Greece to appear before the Committee today.

·         the Greek Supreme Court prosecutor, Mr Dragatsis called on the Greek Parliament to lift the SYRIZA’s MP and Deputy Speaker Mr Mitropoulos’s immunity from prosecution to a case involving a fee (1 mios euros) allegedly paid to Mitropoulos in 1999 which he subsequently failed to declare.

Risk assessment: We have a fluid political landscape. SYRIZA is mainly a grass-roots movement which gained power based on a populistic agenda. Tsipras gradually gained popularity which surpassed traditional left-wing voters and still remains the main party political figure in local political system.

However, SYRIZA’s pre-election strategy is still unknown and the number of middle and low level activists’ departures increases. For this reason, it is too soon to judge the impact of u-turn strategy and SYRIZA’s rupture to the overall popularity of SYRIZA because:

·         a significant number of voters is still on holidays

·         polls still don’t show credible results due to summer holidays

·         tax bills and reductions in pensions will occur later in September; real estate tax will be delivered to citizens, most probably after elections

Greece, economic developments.

·         the Athens Stock Exchange Index jumped by 9.38% to 621.7 points and almost wiped out Mondays losses due to China centric crisis. All four systemic banks’ prices increased between 25.42% and 29.17%. For another day, volume was kept at very low lever (36.33 mios euros). It becomes obvious that a) political uncertainty due to snap elections has increased volatility and b) capital controls has further reduced local bourse’s liquidity.

·         Greece’s 2 year bond yield remained unchanged at the level of 13.47%

·         Greece’s 10 year bond yield increased by 1.19% to the level of 9.745% … yields of Greek bonds remained more or less unchanged during Black Monday.

·         according to the Greek Association of Tourism Enterprises (SETE), tourists’ arrivals up increased by 6.9% during the 7 month period. Athens is leading as regards arrivals, with an increase of 26.5% while Santorini (17.1%), Mykonos (10.5%), Skiathos (14.3%) showing two-digit increase.

·         a protest against the government’s decision to cease the operations of mining company named ‘Hellas Gold ‘in Halkidiki continues for a second day. The number of miners who remain in the tunnels of a goldmine increased to 150 (from 30 the first day).

·         capital controls and political uncertainty caused a slight reduction of the numbers of containers passed through the Port of Piraeus, for a second month in a row. More specifically, 280,600 containers passed through the Port of Piraeus in July (285,600 in July ’14) and 252,700 containers passed through in June (260,300 in June ’14). Overall, there is still an increase in terms of the number of containers during the 7-month period (1,762 mios during Jan-Jul ’15 vs. 1,756 mios in’14)

·         the Greek Banks prepare for stress tests and remain cautiously optimistic as regards the capital requirements which will reveal after the completion of the impeding stress test. The assumptions of the baseline scenario predict a recession of -2.3% in 2015, followed by a recession of -1.3% in 2016 and growth of 2.7% in 2017. Stress tests scenarios were provided by the European Central Banks last week. The Greek Banks will need to deliver the first assessment to ECB by Thursday.

Risk assessment: Although Greece’s country risk has been reduced significantly since the agreement with creditors of July 13^th and its subsequent ratification by the Greek Parliament, local political landscape remains fluid and political uncertainty remains at higher levels compared to the rest of Eurozone. The local, old-fashioned political system is going through a tough restructuring but time is running out for economy and employment. Despite the fact that tourism will achieve another record year, investments in other parts of economy have been ceased, and capital controls impact severely mainly the small and medium size enterprises which represent the majority of local economy.

However, Greece maintains significant competitive advantages compared to other countries in this region and its geopolitical role has been enhanced due to the chaos which continues and intensifies in Middle East and Turkey region. In addition, Greece’s comparatively higher interest rates compared to other countries of eurozone, make investments in Greek assets very appealing to foreign investors. However, investors maintain a wait-and-see stance. The local economy needs a strong government which will acquire the ownership of the 3 year program of structural reforms and will lead the country back to normality.