SocGen's Take On The Greek Elections And What Happens Next
SocGen summarizes today's Greek elections and their implication:
What next in Greece? As we head to press, the preliminary results (82.5% of national vote counted) of the Greek general election show 130 seats out of 300 seats to the pro-programme New Democracy Party and 33 seats to PASOK, combined the two pro-programme parties should thus have secured enough seats to form a unity government. The largest anti-programme party, Syriza, secured 71 seats, making it the second biggest party in parliament. Sunday evening, Presidents Van Rompuy and Barroso issued a statement welcoming the election outcome and noting that “The second Greek adjustment programme <..> is the basis upon which to build to foster growth, prosperity and jobs for the Greek people. We stand ready to continue assisting Greece in achieving these goals”. We expect to soon see a renegotiation of the target dates and a real effort to free up structural funds, etc. for Greece.
MARKET ISSUES: Greek euro exit fears are likely to ease for now, but even in this best case outcome, Greece will continue to struggle to meet programme targets and renegotiation with a possible third programme for Greece will soon have to be addressed. Moreover, this does not solve the fundamental issues weighing on Spain and Italy.
And as an added bonus: the French bank's take on the NEW QE:
Will the Fed adopt QE3? Yes! Will it help? Only at the margin. With economic data signalling stall speed growth for the US, we expect the Fed to lower its current 2012 growth outlook from 2.7%, narrowing the gap to our own forecast of 1.8%. This – and the risks from the euro area debt crisis – will allow the Fed to adopt QE3 at the June 20 FOMC. We estimate the Fed could extend twist by another $150bn, but our expectation is that the Fed will instead allow its balance sheet to expand a further $600bn, with purchases split 40/60% between MBS and Treasuries.
MARKET ISSUES: Opinions are increasingly divided as to whether additional QE will help – some even fear it could be counterproductive. QE works through three channels (1) the interest channel (borrowing conditions), (2) the US dollar (competitiveness) and (3) asset prices (wealth effect). We have long held the view that each new round of QE comes with diminishing returns. We nonetheless see the impact as positive – if nothing else giving the reassurance of a pilot in the plane.
All that said, in a global market in which only the next 60 seconds of trading matter, as beyond that anything is merely in the eye of the central planning beholder, and out of the purview of the newsletter one just spent $29.95 purchasing, it is all surely good enough.