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As Greek Bonds Top 12%, What Happens Next?
Greek stocks are down over 8% (and were worse) back to more than 2-year lows (as banking stocks are massacred) and 3Y bond yields are back over 12% (post-bailout highs) following Samaras' 3rd failed attempt to avoid a snap-election and all the GREXIT possibilities that brings. So, what happens next?
Not Good...
And the Greek curve is now massively inverted as ECB QE momo muppets rush for the exits at the short-end...
Not-er Good...
What happens in Greece now?
The government’s candidate for President, Stavros Dimas, gained only 168 votes – well short of the 180 he needed and no further improvement on the previous round.
The Greek parliament will be dissolved and snap elections called. The parliament must be dissolved within 10 days, while Greek Prime Minister Antonis Samaras has already said he will ask for the snap elections to be held on 25 January (must take place within 30 days and on a Sunday). As we previously noted on this blog, things will probably get worse in Greece before they get better.
Has anyone gained from this saga?
The recent polls have shown that the governing New Democracy have closed the gap somewhat on SYRIZA. An Alco poll for Proto Thema released on Saturday put SYRIZA on 28.3%, New Democracy on 25%, Golden Dawn on 5.2%, PASOK on 4.6%, To Potami on 4.4%, the Greek Communist Party on 4.2%, and the Independent Greeks on 3%. Previous polls had put the gap between the top two parties at almost eight percentage points.
In general, it is clear that there are concerns around SYRIZA’s ability to govern and what exactly they will do when in power. They have said they will renegotiate the Greek bailout and push for a debt restructuring, however, it is far from clear what they will do if they do not get what they want or how hard they will push back against other eurozone countries unwillingness to take such action. Much of the market uncertainty – Greek borrowing costs have risen and the stock market has fallen sharply – can be attributed to markets trying to price this political uncertainty.
That said, New Democracy has also not come out of this unscathed. Greek Prime Minister Antonis Samaras has looked weakened by this saga. He has continuously warned that snap elections could provoke a new crisis in Greece. While these warnings seem valid, some believe his approach has verged on scaremongering. The extent he has pushed back against elections has also at times verged on a dismissal of democracy and the democratic process.
PASOK, the Greek Socialist Party, seems to be the biggest loser. Currently part of the governing coalition with 28 MPs in the Greek parliament, in new elections the support for the party could fall to between 3% and 5% – leaving it with around 15 MPs in the new parliament.
How might a new Greek government look?
As the graph below shows (based on the poll cited above), it is unlikely that any party will have a clear majority in the new parliament, even with the 50 seat bonus given to the most voted party. This means SYRIZA would have to find a coalition partner.
Recent polling by Alco for Proto Thema suggests that no party will command an absolute majority of seats in the new Greek Parliament following snap elections, although SYRIZA will likely be the largest party.
However, there are few obvious candidates. SYRIZA has been at loggerheads with the current governing parties so some form of grand coalition seems very unlikely. At the moment, the most likely candidate is To Potami – a new party formed earlier this year which should gain a decent number of seats. They are meant to be a centrist party (its short lifespan makes it hard to judge conclusively), so this could help balance out concerns over SYRIZA’s more radical factions. However, there seems to be little love lost between the parties’ two leaders, so striking a deal could prove tricky.
All this raises the question of whether we could have a replay of the 2012 elections where the first general election failed to yield a stable governing coalition meaning another round of elections is needed.
What does this mean for the Greek economy?
A huge amount of uncertainty.
Firstly, questions will be raised about whether Greece can meet the conditions of its recent bailout extension. The deal allowed the country an extra two months to complete some further reforms and for the EU/IMF/ECB Troika to complete its current bailout review. However, the first two weeks of this period have been spent on the presidential vote – little time has been spent taking action. Now the parliament is to be dissolved, meaning that nothing can happen for at least a month or six weeks – and certainly no new legislation can be passed. Some work will continue behind the scenes, but with the political establishment in full election mode, minds will be elsewhere. Furthermore, the landscape could fundamentally change after the elections, providing an excuse to delay any radical reforms.
Secondly, the new government will have to negotiate a process for exiting the current bailout and filling Greece’s funding gap over the next few years – likely to be double digit billions. The window to work in here is small meaning the pressure will be on, reducing the room for manoeuvre. With the bailout finishing at the end of February the new government will have little time to secure a deal or face cash shortages in the following months. The negotiations over the future role of the IMF will be particularly fraught, with many in Greece keen to see them leave but with eurozone partners wanting the funds involvement to continue. Fundamentally, Greece and the Eurozone will have to face up to the question of debt restructuring for the first time in two years – an issue many incorrectly thought had been put to bed.
Thirdly, the new Greek parliament will still have to elect a new President. This can take more or less time depending on how solid the new government is. However, after the new Greek parliament takes office, the rules to elect the new President will become less strict – meaning that even a relative majority of MPs would be enough in a potential third round.
What does this mean for the Eurozone?
It has once again been clear from this episode that financial market jitters in Greece are now largely contained, there has been little to no spill over into other Eurozone countries.
That said, what happens in Greece could have important implications. If SYRIZA come to power, many could see it as a dry run for what might happen in the Spanish elections due at the end of 2015, in which Podemos are expected to make huge gains and possibly be the largest party. Similarly, SYRIZA are seen by many as the template which a number of populist/anti-austerity parties are trying to follow. This is driven home by the fact that Pablo Iglesias, the leader of Spain’s anti-establishment party Podemos, tweeted the following earlier today, “2015 will be the year of change in Spain and Europe. We will start from Greece. Come on, Alexis! Come on, SYRIZA!”.
The negotiations over Greece’s debt will also be seen a precedent. Any deal or restructuring offered to Greece may have to be offered to other countries, particularly those who took bailouts and have very high debt levels (both Ireland and Portugal qualify). The conditionality will also be scrutinised, particularly at a time when France and Italy are pushing back against the strict reform and fiscal consolidation criteria. Any additional room given to Greece will be noted and demanded by other eurozone states. As has often been the case, Greece may once again become a testing ground for the next round of Eurozone crisis policies.
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I hear Russia is looking for a place to land South Stream...
seems just more talk to me ...that mr. market is ignoring it .... gold down, euro the same, so que problemo?
The EU referees will call a time out for a fake injury and give Sampar'sass a red card, ejecting him from the game, thereby opening up the opportunity to insert a Goldman Banker up the Greek population's arse in the style invented during a wild Delphian Oracle party some 3,000 years ago and aptly named in honor of the "Greek"s.
As the old Greek saying goes: When you're taking a stranger from the rear, nothing better than the reach around, pretending you went all the way through.
See, what the bankers are doing to the peasantry was foreseen in traditional statements from Plato's Retreat days.
"Elect" new guy, print more debt, restructure debt....."Elect" new guy, print more debt, restructure debt....."Elect" new guy, print more debt, restructure debt....."Elect" new guy, print more debt, restructure debt.....
But like all things it will end. It will begin anew one day, but it will end.
Get used to it:
The global financial mafia mechanisms were mobilized one more time to spread the fear across the eurozone: "Sensing that political instability might rekindle the euro crisis, financial markets panicked. Prices on the Athens stockmarket plunged by almost 13% the day after the presidential vote was announced; yields on Greek ten-year bonds soared above 8% ..."
You buy thier stuff because that's what scams are for in a Communist system
German Company to Buy Greek Island “For Customers”
http://newworldorderg20.wordpress.com
And where oh where was it but here on the Hedge that Tyler aptly pointed out within days of the "first" Greek crisis that our New Money Overlords would be buying Greece's islands.
Whatta buncha Conspiracy Nuts!
Another Conspiracy Theory becomes Conspiracy Fact!
PS You guys seen those new 12 volt tin foil hats?
Mr. Samaras, the IMF is on line 2. [/antonio's personal secretary]
I wonder if the mean greece citizen, who lost his house but not the debt, who lost his job but not the taxes, would care about the stock market at all.
I'm still wondering how people in Cyprus are making it.
I was there recently. Looked like they were doing just fine :)
People weren't pissed off that all the cash in their bank accounts over $100,000 was stolen? Go figure.
One could come to the conclusion that allowing a foreign currency over which you have no control to be your National currency is a BAD IDEA.
So you're saying we shouldn't adopt the SDR....
Are you talking about Greece with Euros or America with Federal Reserve Notes?
Good one.
Corzine buying it all up?
Forbes buys some more islands pennies on the dollar.
Well either Europe...Germany..can keep giving Greece 15 billion a year to stay around or they dont....that is all...
For every 15 billion given to Greece, Germany has been making 30
"With the will of our people, in a few days bailouts tied to austerity will be a thing of the past," Syriza leader Alexis Tsipras said after the vote. "The future has already begun."
http://www.reuters.com/article/2014/12/29/us-greece-vote-idUSKBN0K60MA20...
One of the best returning investments of 2013 looks to be one of the worst returning investments in 2014.
Note to hedge funds - mean reversion bitchez!
Here we go again with faith in centrally planned elections.
"With the will of our people, in a few days bailouts tied to austerity will be a thing of the past," Syriza leader Alexis Tsipras said after the vote. "The future has already begun."
So your economy is nothing...how are you going to pay for your Socialist programs......you have nothing to sell...just tourism...and a good salad...you are going to be reset back 150 years...where you had fishermen....goat ranchers....and Olive oil farmers.....and that is about it....its going to be a long tough struggle....but the strong will survive....and prosper....the little old lady on welfare or a pension...not so much...
The little old lady can watch the kids and yes, people will turn to farming agian instead of consumerism and tourism. You think this is a bad thing?
Saramas to Draghi "Hey look I found that can again"
We get into tangible assets is what happens. This turmoil is further proof of what we all knew: Europe kicked the can down the road with more debt and huge austerity which has produced zero growth in Eurozone. Investors are escaping Greece and they won't come back. The dollar rally will continue.
http://otdon.blogspot.co.uk/2014/12/greece-set-for-snap-election-exit-fe...
Time to step up to the plate Putin.
Are you for real? Do you want to save Russia from Western Imperialism?
Greece is your first big chance in 2015 to strike a blow against the Fiat Empire of EU/USA.
South Stream has been rerouted to the Turkey-Greece border - extend it into Greece at a discounted rate for your Orthodox Greek brothers.
But.
Payments for this cheap gas can only be made in New Drachma, Roubles, Yuan or Gold - not the fiat follies of Euros or US Dollars.
Do these and watch the European banking system implode.
10 Year yield update...
http://www.globaldeflationnews.com/10-year-u-s-treasury-index-yieldellio...
USD update...
http://www.globaldeflationnews.com/u-s-dollar-indexelliott-wave-update-f...
DJIA update...
http://www.globaldeflationnews.com/dow-jones-industrial-averageelliott-w...
Better pull money out of the banks as quickly as possible. In times like these, cash is extremely valuable. You can get a nice car for $1000 used!
Do not be surprised if Samara's New Democracy Party wins albeit without Samaras.
Do not underestimate the fear of the pensioners that voting Syriza might lose them their pension.