Sep 4th, 2015 Creditors increase pressure to Greece to meet its deadlines amid pre-election period

Sep 4th

·         The Governor of ECB Mario Draghi stated that a) depositors shouldn’t be hurt in the forthcoming recapitalisation of Greek Banks and b) Greece is not ready for ECB to buy its bonds. He also stated that there are three pending items which prevent the participation of Greece in QE program i.e. 1) Greece needs to successfully complete the evaluation of its program 2) the sustainability of Greece’s debt needs to be enhanced and 3) ECB needs to change the terms of current QE  

·         Another poll was published showing a narrow gap of 0.5% between SYRIZA and New Democracy. More specifically, another Pulse’s poll showed SYRIZA’s popularity at 25.5% and New Democracy (centre right) at 25.0%. Golden Dawn (far right) follows with 6% and PASOK (centre left) with 5.5%, KKE (communists) and Potami (centre) with 5%, LAE (eurosceptics left, ex SYRIZA) with 4.5% and Centrist Union with 3.5%. Tsipras’ popularity is recorded at 36% vs. Meimarakis’ one which is at 33%.

·         IOBE’s economic climate index lost ground in August to 75.2 which is the 6 year low (since May 2009). The Greek recording is in contrast to the slight improvement which was recorded in Eurozone. In addition,

o   Consumer confidence was further retreated to -64.8 in August after the significant decrease of July.  

o   All various indices such as retail sales, new orders, expectation for new business and employment continue their decreasing trend which result to further decrease of business climate index to -31 (service sector experiences the most dramatic decrease).

o   It appears that expectations for employment in Greece’s industry have retreated to the lowest level since 1985 (when we had the first recording of this index). At the same time, PMI for employment showed the biggest decreases in its history.

·         The caretaker Minister of Economy Christodoulakis stated in his interview that if Greece manage to meet the crucial deadline of Greek Banks’ recapitalisation, it is feasible to achieve the lift of capital controls by year end.  

Risk assessment: Polls continue to show a neck-and-neck battle between SYRIZA and New democracy: 1) It appears that SYRIZA maintains a strong popularity among employees working in public sector (0.7 mios civil servants out of 6 mios voters) 2) historically, it has been recorded that the real popularity of Golden Dawn (neo Nazi –far right) is higher than the one recorded in polls. This is justified by the fact that Golden Dawn’s voters either don’t participate in polls or they respond to them by saying that are in favour of other parties. It is still uncertain how electorate will respond to the on-going refugees’ crisis which mainly hits Athens’ low income suburbs and islands.  

Capital controls have started impacting local economy. Although retail sales showed a slight increase in July, this occurred due to the use of available cash. However, the amount of circulated banknotes gradually decreases and unless confidence is restored this will impact economic activity in the coming quarters.  

Although Tsipras rejects it, the formation of a coalition government after elections appears to be one way road. Greece needs to restore confidence in local economy sooner than later. In order to achieve it, the Greek government will need to implement all required structural reforms and complete successfully the recapitalisation of local banks. The latter is prerequisite in order to avoid deposits’ haircut. Last but not least, the significant deterioration of all economic indices could act as a catalyst to achieve a coalition government.