Sep 9th, 2015, Greece’s political leaders battle it out in TV debate

September 9th

·         With just one and half week before of snap elections, local political parties continue their campaigns as many Greek voters remain undecided.

·         SYRIZA’ Tsipras (left) and New Democracy’s Meimarakis(centre right), will have the chance to face each other tonight, during the first TV debate of Sep 20^th elections. In addition, the political leaders of PASOK (centre left), Potami (centre), KKE (communists), Independent Greeks (nationalists – right, former government ally of SYRIZA) and LAE (new Eurosceptic party, left ex-SYRIZA) will participate in tonight's debate. Another debate will occur next week, in which Tsipras and Meimarakis will participate only.

·        a number of anti-PKK marches turned violent in Turkey. More specifically, the headquarters of pro-Kurdish People’s Democratic Party HDP in Ankara and Kırşehir province, were attacked by dozens of demonstrators.  The Turkish Prime Minister Ahmet Davutoglu appealed for calm. Turkish warplanes launched a wave of air strikes on bases to PKK (Kurdistan Workers’ Party) in Nothern Iraq. In addition, Turkish ground forces crossed into Iraq in pursuit of Kurdish militants, for the first time since the cease fire with PKK, which occurred two years ago.

·         the Greek Banks’ NPLs reached the level of 45% in July, from 35% in June.  However, it seems that situation returns gradually to previous levels, following the agreement of July 13th and gradual relaxation of capital controls. For instance, the 80% of loan holders, who were paying regularly their installments before capital controls, paid their August installment (it was 15% in July).  

·         The implementation of capital controls, impacted positively Greece’s pension funds financials. More specifically, debtors to local pension system increased their payments due to Banks’ bail-in fears. As a result, Pension System’s deficit decreased to the level of 460 mios EUR during the period Jan-Jul (it was 1.072 bios EUR during Jan-Jun period).

 

       However, the cash situation in Greece’ Pension Funds is still critical and will further deteriorate. For instance, the total 7-month revenues were lower by -11.1% and expenses lower by -7.5%, compared to 2014 . Although expenses will be lower in coming months due to pensions’ cuts, deficit could be higher than it was previously predicted.  

·         The Hellenic Financial Stability Fund in cooperation with Greece’s Ministry of Finance continue the preparation of the legislation required to proceed on local Bank’ recapitalization. Furthermore, Greece needs to approve new legislation in order to comply with EU directive BRRD. All regulatory changes need to be approved by local Commons just after ECB's announcement as regards Greek Banks’ additional capital needs; asset quality review (AQR) and stress tests will be published by mid-October.   

·         Greek Banks continue to clear out NPLs from strategic defaulters, who represent 15-17% of total Greece’s NPLs. As a reminder, capital controls prevent early prepayment of loans using deposits held in Greek Banks. This was a necessary measure, because loans are used by Banks as collateral to use ELA’s liquidity.

Risk assessment: Greece’s overall country risk gradually returns close to European normality. 

Although rhetoric among Greek politicians gradually intensifies, Greece’s pre-election period is progressing smoothly. In contrast to previous occasions during 2009-2015 crisis, these elections take place in a remarkably peaceful atmosphere, so far. This development is of immense importance considering a) the ongoing contraction of economic activity, which has been hitting a significant part of local economy since the start of Greek debt crisis b) the tough measures which are included in the 3^rd MoU and c) the escalating refugee crisis.

Polls show that Greeks are in favour of the formation of a coalition government, with a majority which exceeds 70%. They also show that Greek voters are not in favour of the previous coalition government SYRIZA - Independent Greeks  (below 10% popularity)

It is also likely that Greece’s pro Europe political parties will pretentiously disagree on the formation of a new coalition government but could give vote of confidence to the current caretaker government. Needless to say that the caretaker government was approved by both SYRIZA and New Democracy.

Regardless what SYRIZA’s leadership continuously insists that it won’t cooperate with other pro Europe political parties, the formation of a pro Europe coalition government (with SYRIZA and New Democracy) appears to be one way road. Last but not least, this argument is supported by escalating geopolitical developments in Turkey and Middle East.