Sep 30th, 2015, Greece needs to run in order to meet its deadlines

·         Tsipras continues his trip in US. He met with representatives of the powerful Greek American community yesterday night. He admitted that US administration was supportive during Greece’s negotiation with its European partners.

·         European Commission’s Vice President Dombrovskis issued a clear warning to Greece’s government that the first review of 3^rd MoU must by completed by November 15, 2015.

·         It appears that Greece’s economic contraction due to capital controls will be less than it was initially expected. Press linkages indicate that in 2016 budget’s bill which will be submitted by local Ministry of Finance in coming days, will include a contraction of -1.5% vs. 2.3% which was initially expected.

·         New measures which indicate relaxation of capital controls announced by local Ministry of Finance. According to the new legislative act, those funds which are generated from liquidation of foreign domiciled mutual funds and are deposited to local banking accounts, are exempted from the daily limit of 60 euros; hence depositors could withdraw 10% of those deposits.  

·         According to European Commission, Greece lost 37 bios of revenues related to VAT during 2009-13. Tax evasion remains at significantly high levels; local ministry of finance fails to collect the 35% of revenues related to VAT.

·         In an effort to attract Foreign Direct Investments, Greece’s Confederation of Enterprises (SEV) started discussion with business counterparts of other major economies. More specifically, the president of SEV Fessas was met with the administration of MEDEF in Paris.

·         Turkey’s Financebank announced that its parent company National Bank of Greece (NBG) is considering various ways to meet additional capital requirements. Press linkages indicate that NBG is planning to sell it 99% stake in Finansebank. The expected outcome of this transaction could surpass the level of 2 bios euros which means that NBG could meet its capital requirements after stress tests without asking for additional capital injection.

Risk assessment. It appears that the next three weeks will be the most difficult period for the new Tsipras’ government. This is because the 3^rd MoU is frontloading which means that about of 50% of bailout’s measures need to be implemented by mid-October, in order to complete recapitalisation of local banks within 2015. Last but not least, the program review needs to be completed by mid- November.  

Ahead of expectations for better than expected GDP and better than expected state revenues due to excessive use of bank cards (which increases tax collection through VAT), it appears that Greece’s government negotiates with its European partners some kind of relaxation of measures, which seems to be feasible.

However, Greece’s government needs to choose relaxation of taxes vs. relaxation of structural reforms on state’s expenditure i.e. pension system. At the moment, Greece has 3 million pensioners compared to 3.5 million employed citizens. It is absolutely necessary that pension system’s restructuring will proceed in order to increase employment, which will enhance pension system’s sustainability and support 

economic growth.

 

Sep 29th, 2015, Tsipras discovers USA

·         Greece’ prime minister continues his trip to US, where he met with the Heads of Brazil and China. He also had a brief face-to-face discussion with US President Obama, who congratulated him for his recent re-election. There are press linkages mentioning that there will be a regular meeting between Obama and Tsipras.  

·         Tsipras ‘discovered’ the need of Foreign Direct Investments during the discussion with the former President of USA, B.Clinton.  

·         Effective 1^st of October, six Greek islands will lose their special VAT status. More specifically, Rhodes, Mykonos, Santorini, Paros, Naxos and Skiathos will see the waiving of 30% VAT discount. There will be two more waves of VAT waiving, the first will occur on 1^st June 2016, and the second on 1^st January 2017 when all Greek islands will have the same VAT status as with the rest of the country. 

·         Tourists’ arrivals via Eleftherios Venizelos airport increased by 25% in Athens during the Jan-Aug period. Road arrivals increased by 10%. 

·         Greece’s government plans to collect 1.1 bios euros from taxation on cars. Since 2009, approx. 772,000 cars have been immobilized due to taxation. 

·         Bulgaria’s current account surplus increased to 675.6 mios euros during the period Jan-Jul 2015, vs. 446 mios during the same period in 2014. Exports increase by 10.8% and imports by 6.2%. 

Risk assessment. Greece gradually returns to normality and reality. It seems that the ongoing debt crisis and negotiation as regards debt restructuring, have forced the local, so called ‘left establishment’ to make significant progress as regards its rapprochement with US.

This represents a historic, unprecedented development for Greece’s contemporary politics, considering the involvement of US foreign policy in two major local events of the last 70 year, such as a) the Greek Civil War (1944-9) and b) the 7 year military junta (1967-74). However, it represents a critical adjustment of local politics to the after Cold War era and reality.

It is highly likely to see the Greece – US strategic alliance to be further strengthened in the coming years. This is due to fluid geopolitical environment of Turkey and Middle East. In addition, Greece will need US support to attract foreign direct investments. Last but not least, Greece needs US technical and political support in its negotiation with creditors.

We may see Tsipras making significant steps towards Greece-US rapprochement.  We may see Tsipras inviting Obama to Athens soon. If that happens Greece will further enhance its regional geopolitical role and could emerge a business hub

Sep 28th, 2015, Greek stocks might be cheap… under certain conditions

 

·         Greece’s Prime has been visiting US; he is going to speak to UN assembly on October 1^st. In addition, he is going to speak with counterparts from Cyprus, Brazil, Egypt, Palestine and Turkey, on the side lines of the UN assembly.  

·         Tsipras attended the Clinton Global Initiative Annual Meeting 2015, where he was interviewed by the former US President Bill Clinton. During this interview, he emphasized his willingness to attract FDIs, but also stressed out the need of debt restructuring. 

·         According to local newspaper Kathimerini, Washington advised Greek government during its negotiation with creditors. It appears that the US government showed a strong interest in keeping Greece within Eurozone and provided advice to Tsipras on how he would deal with negotiation.

·         According the Hellenic Federation of Enterprises (SEV), Greece needs to halt disinvestment which continued in 2014. More specifically, although the total amount of investments reached the level of 18 bios, this was surpassed by annual depreciation which was 33 bios euros. This means that it needs 15bios euros of additional investments on annual basis, in order to maintain its current level of prosperity.

·         It appears that the number of Greek companies, which generated revenues above 20 mios euros decreased during crisis (from 1020 in 2012 down to 872 in 2014). However, the total amount generated by those companies increased as a % of GDP (from 53% in 2010 up to 58% in 2014). If we add the increase of Greek exports by approx. 30% during the same period, this means that concentration and competitiveness of local industry has been enhanced. 

·       Overall, there was an inflow of bank deposits in August, which amounted 300 mios euros. It seems that bank deposits' outflow continue as regards individuals and reached the level of 1 bios euros. However, this was surpassed by bank deposits inflows concerning corporate accounts which amounted 1.3 bios euros. 

·         According to Bradley Paul Martin who represented Eurobank’s main shareholder Fairfax Financial Holdings in the bank’s shareholders meeting, ‘Greece can make a comeback’. In the same meeting, Eurobank's CEO F.Karavias stated that 'after 11 month of political uncertainty and three consequent elections, local conditions are in favour of achieving a long term political stability. He also emphasized that Eurobank will manage effectively the results of forthcoming stress tests.    

Risk assessment. Greece gradually returns to European normality. However, the recent political stability has destroyed significant part of confidence, which is necessary to attract Foreign Direct Investments (FDIs).

The recapitalisation of Greek Banks appear to be the first milestone as regards local economy restart. Although it requires significant technical expertise to manage this process as it invlolves the attraction of foreign private sector funds, there are various elements which indicate that chances increase to achieve a successful recapitalisation, such as:

·         Despite persisting political uncertainty during the last 11 months, the impact on GDP was not significant. More specifically GDP grew by 0.4% in the 1^st quarter 2015 (vs. 1q’14) and by 1.4% in the 2^nd quarter 2015 (vs. 2q’14). Considering that historically the local economy performs well during summer due to tourism, the overall impact to stress tests’ base scenario won’t be significant.

·         The implementation of capital controls impacted significantly consumption in July. However, it also impacted imports which resulted to a significant improvement of current account. In addition, Aug’s private consumption recovered most of July’s loss.

·         Capital controls decreased the circulation of banknotes and increased the transactions with debit cards and/or e-banking; this brings to surface a part of local black economy which improves banks’ liquidity position.

·         There was an improvement as regards Aug’s state revenues (via Tax Offices), which reached the level of 2.8 bios euros. This is higher by 28% compared to Aug’14 revenues (2.19 bios euros). It is still unknown if this continues in September. In case, if this trend continues, it will prove that capital controls impact negatively local black economy.  This development will improve overall economic outlook and indirectly local banks' recapitalisation.

In general, the successful recapitalisation of Greek banks is considered as THE basic prerequisite for local economy’s restart.  It would be extremely difficult to achieve a positive outcome unless:

1.       the Greek government implements structural changes which are included in the 3^rd MoU.

2.       there will be a significant reduction of total expenditure related to pensions. This will a) facilitate the abolition of all hidden taxes, which significantly increase the burden on local enterprises and taxpayers and b) will prepare the ground of tax reduction in coming years.

3.       a Bad Bank is created, which will handle a significant portion of NPLs.

Needless to say, if the latter occurs, it won’t only protect existing private sector shareholders who invested in last year’s recapitalisation but will also send a positive message to international community that Greece re-emerges as a safe investment destination. Last but not least, if the above mentioned three conditions are met, then the evaluations of local stocks are significantly undervalued.

Sep 26th, 2015, It is not a joke...Greece's prime minister is stepping up efforts to implement the 3rd MoU

• Coast guard announced that more than 100,000 refugees entered Greece through the sea, during August 2015. EU’s is stepping up efforts after its recent Leaders' meeting, to resolve the causes of refugee crisis and avoid continent’s instability.
• the newly re-elected Greece’s prime minister was addressing his ministers by stressing out: a) the need to work hard b) the need to avoid appearances in public media c) they will be continuously evaluated as regards their ministerial performance d) they don’t own their ministries but they serve Greek people e) he will be more involved in planning, implementation and control of ministerial matters etc.
• Euroworking Group has been cooperating with the Greek government in order to specify the first set of measures which need to be ratified/implemented required before the release of another disbursement of 2 bios euros. It appears that these measures will include mainly structural reforms such as opening up of closed professions i.e. engineers, actuaries, notaries etc.

·         Press linkages indicate that troika's technical experts will arrive in Athens early next week. It appears that Greece’s budget 2016 will be the subject of the forthcoming discussion as it will include significant parameters of 3^rd MoU. 

 

·     Athens was ranked at 17^th position among the most popular cities to visit in 2016 according to international Tourism’s search engine named Trivago.  

·      Greece’s unemployment decreased to 24.6% during 2^nd quarter of 2015 (vs. 26.6% during 2^nd quarter 2014). It was also decreased to 25.6% during the first half of 2015 (vs. 27.2% during the first half of 2014).  

·         Unemployment’s decrease is due to employment increase by 2.4% (or by 86.4 K) vs. zero % change during the 1^st half of 2016. The number of unemployed decreased to 1.180 mios during the 2^nd quarter 2015 (vs. 1.280 mios during same quarter 2014). The number of long term unemployed decreased to 863.2 K during the 2^nd quarter 2015 (vs. 952.2K vs during 2^nd quarter 2014) 

·         State revenues have decreased by -6.5% during the period Jan-Aug 2015. This is due to a reduction by -2.9% of revenues and by -38.3% of Public Works Program. However, state revenues were increased by +15.9% (annualised) in August 2015.   

·         The significant deterioration of Greek Banks’ liquidity conditions which led to the implementation of capital controls, has practically frozen retail loans activity during the 3^rd quarter 2015. 

·         Several scenarios related to expected pensions cuts were published in Greek press, such as a) a reduction of pensions by -11% for those pensions above 1,000 euros monthly. The number of pensioners who receive amounts above 1,000 euros reach the level of 910,000, which is 34.3% of total pensioners (60% of total pension system’s cost).   

Risk assessment. Although the photos of refugees’ reaching the coasts of east Greek islands dominate local and European media, the European public opinion is gradually shifting its focus to the causes of the problem, which is Syrian crisis. As the ongoing refugee’s influx could destabilise Europe, the EU Leaders took the first set of decisions which also includes direct negotiation with Turkey.

It becomes evident, that geopolitics will play significant role to local and EU economy in the coming years. This is because Syrian crisis is directly related to EU's energy security issues which are crucial for sustainable European growth. Hence there will be no EU strategy on this matter which doesn’t take into consideration Greece.

Ahead of these historic geopolitical developments, Greece’s political and economic systems face significant challenges. Their prompt positive response within EU context could lead to historic opportunities. Tsipras’ apparent determination during his first cabinet meeting needs to disseminate throughout Greece’s leadership, political and economic systems.

Last but not least, the Greek Private sector needs to lead those developments internally. It has to intensify the implementation of international stragegies and promote the internationalisation of local economy, through the prompt implementation of all structural refomrs which are included in 3rd MoU.

In economic terms, this is practically translated to the implementation of measures, which could attract foreign investments and regional business activities. In a few words, Greece

is facing the historic opportunity to consolidate its emergence as regional business hub and stability factor.

 

   

 

 

Sep 25th, 2015, Greece's first cabinet meeting will need to take tough decisions

• Refugee influx continues through Greek islands amid delays as regards EU strategy roll out. Although there was significant progress at last EU Leaders' meeting, there has been significant delays as regards refugee crisis management. It appears that negotiations between EU and Turkey for this purpose, are imminent. 

• Press linkages indicate that the Greek government plans to move migrants from Athens’ city centre to Elliniko. As a reminder, Elliniko is Europe’s largest urban plot and is included in privatisations program. 

• Greece’s current account showed a remarkable surplus of 4.5 bios euro in July’15; surplus is significantly higher compared to July’14 which reached the level of 1.3 bios euros. As a result, the overall current account switched positive and closed at a surplus of 966 mios euros, during the 7 month period.

• A significant portion of current account's improvement reflects to the Securities Market Program (SMP) i.e. the return of 1.8 bios euros of profits realised by other central banks. However, exports (without fuels and ships) increased by 3% vs the same month last year and imports decreased by 40.7% due to capital controls.

• Manufacturing turnover index (without fuels) increased by +3.2% during the period Jan-Jul. However, the same index showed a reduction of -15.4% in July’15 vs. the same month last year. The sectors which continued to show increase were a) food (+0.7%) b) pharmaceuticals (+3.9%) c) electronic products (+66.4%) and d) various products related to transportation (+36.1%).

• Agriculture sector’s output price index increased by +4.8% in July 2015, vs. a reduction of input price index by -1.6%. The input price index has been decreasing for the last 24 consequent months while output price index has been increasing since Dec’14. 

• EU demanded that the Greek Government abolish tax exemption on locally alcoholic beverage such as raki and tsipouro. Raki and tsipouro carry a special consumption tax of 12.75 euros per liter of ethyl alcohol, which is 50% lower than that imposed on other drinks (25.50 euros/liter of alcohol). Bulk raki and tsipouro officially have an even lower tax, at just 1.4 euros/liter. Beer has a 6.50 euros/liter rate, while wine has no such tax. 

Risk assessment. Greece's new government’s agenda consists of mainly of a) implementation of the 3^rd MoU ahead of discussions regarding debt restructuring b) completion of Banks’ recapitalisation within 2015 c) fight against tax evasion, corruption and d) actions to handle refugee crisis within EU context. 

Its agenda is considered extremely heavy and frontloading. However, the new Parliament is more centrist, more pro Europe, compared to the previous one. Hence there will be no excuses as regards delays or program’s derailment.

EU will need to start negotiations with Turkey in order to resolve refugee crisis. It has already offered to Turkey 1 bios euros to handle the situation and prevent its further escalation. However it appears that money is not the key success factor. This is because Turkey has already spent several bios to manage the situation.

The ongoing crisis refugee crisis increased Turkey’s geopolitical role. Turkey demands the creation of a non-flight zone and/or a buffer zone in the northern part of Syria, hence money are not enough and this could be a game-changer for EU's foreign and defence policy.

Last but not least, ahead of the more serious EU's involvement in the ongoing Middle East crisis, Greece’s geopolitical role will be further enhanced. The question is whether Greece's political system, economy and society will see this historic opportunity and pursue a long term strategy according to which, Greece will support EU strategy and emerge as regional business hub and a regional stability factor in South East Europe, East Mediterranean and Middle East.  

Sep 24th, 2015 Greece’s newly appointed government suffered its first resignation

·         It took less than 24 hours for Greece’s newly appointed government to suffer its first loss. The deputy transport minister Dimitris Kammenos was forced to resign due to a string of homophobic and anti-Semitic tweets which were published in his account @portaporta. In addition, there were tweets where he was accusing Tsipras as more criminal than Papandreou.

 

       Kammenos’ resignation was the result of serious allegations from social media, political parties and Tsipras’ internal opposition which is named ‘movement of 53’.

Dimitris Kammenos is MP of Independent Greeks (nationalists), which is SYRIZA’s governmental ally. Although he has the same name as the leader of Independent Greeks and Minister of Defence, Panos Kammenos, there are not relatives. 

Kammenos denied allegations and asked Cyber Crime Unit to determine if his account was hacked. However, the same person was accused by Greece’s Central Israeli Council last June, when during the pre-referendum period, he published the photo of Auswitch concentration camp entrance, in which he had electronically replaced the original title ‘arbeit macht frei’ with the basic theme of Yes campaign ‘We stay in Europe’.

·         Greece’s Finance ministers, Tsakalotos, Alexiadis and Houliarakis made statements indicating increases of taxes and abolition of tax exemptions. There are linkages that a single set of tax rates will apply to all sources of income i.e. salary works, pensioners and property owners. 

·         Labor minister Katrougalos stated that new cuts in pensions are inevitable. According to 3^rd MoU, there will be a reduction in pensions’ expenditure by 3.5 bios euros by 2018. The experts committee on social security will deliver its plan by first week of October.  

·         ECB's Draghi stated that he could bring back Greek debt waiver after successful completion of Greek program’s evaluation. He also mentioned that the discussion regarding debt sustainability could start immediately after the completion of banks’ recapitalisation and program’s evaluation.    

Risk assessment. As it was stated before, the coalition government between SYRIZA (pro Europe left) and Independent Greeks (nationalists) is tactical, is based on opportunistic objectives and may be short term. Although it could be justified during anti memorandum era, it becomes groundless after the July 13^th agreement and 3^rd MoU.

The political party Independent Greeks includes a significant part of local ‘trash’ populistic politics whose popularity is based on anti-Semitic, homophobic, racist rhetoric.  Consequently, Dimitris Kammenos’ case is not unique, there were incidents in the past (i.e. the attack of another IG' MP Nicolopoulos who posted a homophobic tweet against Luxemburg's prime minister) and we may see more to come.

This case brings to surface several points:

1.       The power of social media which ensure transparency in local politics. Although Kammenos was very keen in publishing racist and homophobic twits, he denied allegations and close down his account. This initiated a significant number of posts with previous Kammenos’ tweets showing its unacceptable political behaviour.

2.       Tsipras faced for the first time, the pressure from the so called ‘Movement of 53’ which is SYRIZA’s internal opposition. It attacked the Prime Minister’s decision to accept the appointment of Kammenos and accelerated his forced resignation. The movement of 53 carries on with allegations against the appointment of Bolaris (ex-PASOK minister) to the post of deputy minister of Agriculture. 

 

        3.       Kammenos' incident came just after Martin Schultz questioned Tsipras' decision to form coalition with a nationalistic party instead of other centre left parties such as PASOK and Potami.  

4.       although Dimitris Kammenos was forced to resign, he remains MP of Independent Greeks which means that he continues to support the coalition SYRIZA – Independent Greeks. This is also politically unacceptable for European political ethics.  

5.       as it was stated before the 3rd MoU is frontloading and new government will need to ratify and implement a significant number of measures, during the next 50 days. These measures will impact local vested interests and SYRIZA’s core of its electorate. Although Kammenos’ resignation represents an incident of significant importance, it distracts local public opinion from main political agenda. We may see more similar incidents in the following weeks which will distract public opinion

6.       It is still uncertain if Tsipras get rid of 'Independent Greeks'

  and form coalition government with PASOK, Potami and potentially Centrist Union. However, pressures to do so will further intensify. In addition, it is not certain that Independent Greeks will support all forthcoming legislation. Last but not least, it is highly likely that New Democracy won’t support all SYRIZA's legislation and won't join a coalition government due to its planned conference to elect its new leadership.

Sep 23rd, 2015, Think positively…Tsipras’s new government wouldn't be difficult to be better than his first, disatrous one

• Greece’s new government was sworn today, three days after elections.

• There are no changes as regards the team which will deal with critical economic matters, recapitalisation of banks and the implementation of 3^rd MoU. The number of ministries was increased to 14 (from 10 currently). 

• moderate Dragassakis continues as Deputy Prime Minister, Euclid Tsakalotos will continue to lead the Finance team, which consists of Alexiadis who will be handling state revenues and Houliarakis (Deputy Finance Minister) who was Greece’s main negotiator after Varoufakis' departure from the big Picture.

• EU leaders meeting is set set to approve a plan to relocate 120,000 migrants across the continent, despite fierce opposition from Romania, the Czech Republic, Slovakia and Hungary, which voted against the mandatory quota scheme. According to this plan, 50,398 refugees will be relocated from Greece to other EU countries.

• The head of Euroworking Group Thomas Wiezer, stated that a) recapitalization of Greek Banks and b) changes regarding NPL’s handling appear to be prerequisites for the disbursement to Greece of the last 3 bios (out of 26 bios of first chunk of 3rd MoU).

• Three energy consortiums are preparing the ground to increase their participation in Greece’s energy sector, after the liberalization of energy market which will occur in the beginning of 2016. They will be focusing initially on a) big industrial customers and b) 25% of retail customers. According to Kathimerini, Greece’s lenders are worried about the total amount which is required for Banks’ recapitalization.

• The port of Piraeus was named as the fastest growing port in the world during the period 2009-2013, according to data collected by the International Association of Ports and Harbors (IAPH). The period coincides with the presence of Chinese giant Cosco at Greece’s main port, where it continues to operate. As a reminder, Cosco plans to further invest in the port of Piraeus and expand its operation.

• According to the Bank of Greece, the number of tourist arrivals increased by 14.2% during the period Jan-Jul but revenues increased by 6.7% only.

• Kiriakos Mitsotakis announced his candidacy to run for New Democracy's leadership. He is the son of former Greece's Prime minister Constantinos MItsotakis who governed during 1990-3

Risk Assessment.

Firstly, it would be extremely difficult for Tsipras to have appointed a better government, because local electorate is still in transition from previous anti memorandum rhetoric to a more realistic one; and this is reflected to new government. However, the fast formation of the new government appears to be a positive step of immense importance, because Tsipras was elected to implement the 3^rd MoU.

Secondly, Tsipras new government is not the pro markets, pro economy type of government which could help the economy to revive. However, it could be proved as a special purpose government which could implement the requirements of 3^rd MoU.

 

Thirdly, it would be extremely difficult to say that Tsipras could have appointed a worse government, compared to the first SYRIZA government which included Varoufakis and other eurosceptics. It is comparatively positive that Tsakalotos and Houliarakis will continue to run Finance Ministry and negotiations with creditors. Although Tsakalotos is a member of the movement of 53, which appears to be Tsipras internal opposition, he has showed evidence that he is more pragmatic, professional and reliable compared to Varoufakis. In addition, he will be supported by the low profile and hardworking professor of economics Houliarakis who has been Greece’s main negotiator after Varoufakis departure from the picture.

 

Fourthly, the new government includes more members of PASOK origin such as Kouroublis (was promoted to Minister of Interiors & Administration Reconstruction), Tzakri (deputy minister of industry) and Bolaris (alternate minister of agricultural Development and Food). This is due to the recent increase of PASOK (popularity) and its ongoing efforts of PASOK’s leadership to reconstruct the centre left pile of local political system.

 

Last but not least, the reappointment of Dritsas as a minister of Shipping appears difficult to be justified considering Dritsas’ opposition to the ongoing privatization of the port of Piraeus. In addition, the Ministry of Shipping was split from Ministry of Economy as part of a tactic to separate the administration of ports from investments/privatizations.

 

Unless this appointment represents another Tsipras’ trick to appoint a bad cop to this post, keeping for himself the role of good cop, this appointment will cause significant obstacles to the Port of Piraeus project and to overall Greece’s strategy to attract investments.

 

 

 

 

Sep 22nd, 2015, Tsipras returns to Maximos Mansion but new bipartisan government’s time horizon may be short term

• Tsipras (leftish) was sworn in as Greece’s Prime Minister after his personal triumph in Sunday’s  elections, and his agreement with Independent Greeks (nationalists) to form coalition government.

 

• However, the total number of MPs who will support Tsipras’ new government is 155 (out of 300), which consists of 145 SYRIZA MPs and 10 of Independent Greeks ones. The new coalition government is supported by 7 MPs less compared to his previous coalition government, which was 162 MPs (149 SYRIZA’s MPs and 13 Independent Greeks).

• The head of the European Parliament, Martin Schulz, questioned the decision made by Greek leftist Alexis Tsipras to renew a coalition with the extreme right-wing Independent Greeks party.  

• New Democracy’s Meimarakis announced a party conference to elect the new leader of Opposition, in October.  

• Elections abstention was increased significantly in Sundays’ elections i.e. 5.57 mios voted in Sunday’s elections compared to 6.33 mios voted in Jan’15, and 2.05 mios who voted in 2009. This is translated to a reduction of 1.5 voters during the 6 years period of austerity. Although Tsipras maintained his power, in terms of percentage of total voters, SYRIZA received 320K less votes compared to last January (1.93 vs. 2.25 mios). 

 

Greece’s new government has to ratify by mid-October, a set of new measures of approx. 3-5 bios euros (1.5-2.5 % of GDP) such as: 

1. the increase in the tax rate on farmers to 20% in 2016 and to 26% in 2017, from 13% today
2. the tax on TV adverts, the tender for the auctioning of TV channel licenses,
3. the increase in the tax on rental incomes from 11 to 15% for annual earnings of up to 12,000 euros and from 33 to 35% for greater earnings,
4. the gradual abolition of the special tax status for the shipping sector. 

• On the other hand, Greece's debt due increased to approx. 7 bios euros during the first 8 months of 2016 while old debt amounts to 72.18 bios euros (44.4% of GDP)
• last but not least, the new government will have to complete Greek Banks' recapitalization.

 Risk assessment: The elections’ result was Tsipras' personal triumph, who gambled on the snap elections last month to see off a revolt by party radicals over his U-turn on accepting more tough austerity measures in exchange for Greece’s third international bailout.

Although the country’s risk profile has been substantially improved since early July, uncertainty remains at comparatively higher levels compared to rest of Eurozone; this is related to the implementation risk of 3rd MoU and sustainability of new government.

For instance, the 10 yr. bond yield fluctuates close to 8.3% vs almost 20% in July 10^th.  In addition, the bipartisan coalition government may have a short term time horizon due to the following reasons:

·         Tsipras return to Maximos Mansion (Prime Minister's Office) with his hands tied due to the 3^rd MoU.

·         Although the percentage of abstention (45%) is not reliable because electorate’s lists are not automatically updated, the significant reduction of voters (-1.5 mios since 2009) represents a significant factor of uncertainty.

·         The 3^rd MoU is frontloading in terms of implementation of structural reforms. The new Tsipras’ government will have to implement a significant number of new measures by end October, which appears highly uncertain considering the various statements of newly elected MPs.

·         It is highly unlikely that pro Europe political parties such as New Democracy, PASOK, Potami and Centrist Union will either offer vote of confidence or support new government’s legislation.

·        the formation of a bipartisan government between leftish SYRIZA and extreme right Independent Greeks, is considered as an opportunistic alliance without any ideological and or strategic substance. It also represents a show stopper to receive any support by other pro Europe political parties.

·        the new set of structural reforms will impact significant vested interests such as farmers, pharmacists, pensioners and state employees (due to privatization plan).

·         Although Tsipras has cleared his parliamentary group from the Eurosceptic Leftish Platform,  it is highly likely that he will face issues from the so call ‘Movement of 53’ which represents his new internal opposition.

Tsipras will need to cancel his coalition with Independent Greeks, in order to secure the form of the other two pro Europe, centre-left political partes and form a three party coalition government i.e PASOK (17 MPs) & Potami (11 MPs) . This government will have centre-left political orientation according to European standards and a total number of MPs 173 (145 + 17 + 11) .

It is highly unlikely that either New Democracy (due to its conference) or Centrist Union (new party) will join a coalition government with SYRIZA, at this stage.

Sep 21st, 2015, Greece gradually returns to European normality

·         In contrast to all polls which were showing a neck-and-neck battle, Tsipras managed to win elections by 7.5% points vs. New Democracy (35.54% vs. 28.03%), and maintained last January’s popularity and stayed in power.  

·         Greece’s new Parliament will consist of 8 political parties; the Centrist Union which is a pro Europe, one-man-show political party managed to enter the parliament after three decades of political struggle.   

·         The new Eurosceptic party named Popular Unity ,which was formed after SYRIZA’s rupture, failed to surpass the threshold of 3% and stays out of parliament.

Risk assessment.

·         Greece’s risk profile further improves after elections. SYRIZA and Independent Greeks will form government based on the pro Europe agenda which is included in 3^rd MoU. This is development of immense importance, considering fluid regional geopolitics and local deteriorating economic conditions.  Although implementation risk remains, it follows a decreasing trend.
 

·         These elections are considered as Tsipras’ personal political victory. Tsipras thrashed political opponents, eurosceptics and pollsters.  

·         The new Parliament is more centrist and more pro Europe compared to previous one. In addition, SYRIZA and Independent Greeks can form government and will be supported by other pro Europe political parties, in case of crucial legislation regarding structural reforms. However implementation risk remains especially in areas such as privatisations, farmers and pensions. 

·         Greece’s pro Europe parliament is in line with local public opinion which favours euro (70-80%). This is translated to a gradual transition from previous vote of protest to a comparatively more rational one.

·         Although some of Friday’s polls were showing SYRIZA’s lead by 3%, this was not the case during the pre-election period during which they were showing a neck-and-neck battle. Once more local pollsters failed to predict results during pre-election period. The same applies on exit polls which were showing SYRIZA’s narrow lead with overlapping vs New Democracy. 

·         In brief, yesterday’s elections brought to surface three surprises:

1.        SYRIZA’s lead by 7.5% points despite the U-turn which occurred as regards the July 13^th agreement and 3^rd MoU.

2.       SYRΙZA’s ally Independent Greeks (nationalists) managed to surpass the 3% threshold (3.67%) and enter parliament, despite polls of all previous weeks which were showing the opposite.

3.       The new Eurosceptic, ex-SYRIZA political party named LAE failed to surpass the 3% threshold (2.6%) and was left out of parliament. This occurred despite the fact that a significant number of former SYRIZA’s executives, the significant number of its Central Committee and the majority of its Youth's Central Council were supporting it. For instance, the former Finance minister Varoufakis, the former minister of Energy Lafazanis, the former minister of Pensions Stratoulis and most importantly the Former Speaker of Commons Constantopoulou, the ex MEP and Leftish icon Glezos were among LAE's supporters/candidates. 

·         New Democracy (centre right) has lost elections but slightly increased its popularity vs last January’s one (28.03% vs 27.81% in January). It lost elections mainly to the following reasons:

1.       Despite the fact that the 3^rd MoU represents Tsipras’ U-turn, he achieved to neutralise ND’s competitive advantage which was its pro Europe stance.     

2.       ND is still an old-fashioned political party, which is dominated by various local and country-level Barons.

3.       Its political message needs to adjust to new conditions i.e. refugee crisis, social inclusion, unemployment, youth, Balkans etc.

4.       ND’s leader performance was better than expected. However, he was not a new face in local politics and appeared as he had a special purpose role (he didn’t achieve to change any candidate).  

 

5.       Greece centre right will go through a significant restructuring process, in the coming months.

·       the other pro-reform, pro Europe, centre left/liberal party named Potami suffered significant losses vs last January, despite the inclusion of significant number of famous professionals, academics and politicians. It becomes obvious that being professionally competent and successful, doesn’t make automatically a well-accepted politician.

 

·         Last but not least, abstention increased to levels close to 45% which represents a historical high. It becomes evident that the significant number of elections (7 parliamentary elections, 1 referendum, 3 municipal during the last 11 years) have caused a fatigue to local electorate.