Our Opinion: 2014
Greek economy faces ‘irreparable’ damage
The Boss of the Greek Central Bank has warned that the economy faces ‘irreparable’ damage from the ongoing political crisis.
Yannis Stournares said that the “crisis in recent days is now taking serious dimensions… and the risk of irreparable damage for the Greek economy is now great.”
Greek politicians will start voting on Wednesday for a new President and, if the Government nominee looses, there will be a snap election. That political uncertainty has rattled bond and equity markets over the recent weeks.
Prime Minister Antonis Samara tried to rally his conservative MPs late last week saying “All deputies must decide whether we will have a president, or early elections. Elections that society does not want, which the economy cannot bear and which markets fear.”
Mr Samara is unlikely to secure an outright win in the first round. He needs a two-thirds win to avoid a second vote on 23rd December. The Prime Minister has a narrow majority of 155 seats.
In an odd move, the European Commission applauded Samaras’s decision to bring the vote forward, since it had not been due until February. Samaras said that the election was brought forward to eliminate political turmoil later. Annika Breidthardt, EU commission spokesman said, “the decision can help remove uncertainties around markets. It is a strong signal to Europe that Prime Minister Samaras put forward his candidate, Stavros Dimas, a former commissioner and a convinced European.”
The left wing, populist, anti-austerity Syriza group, which is leading in the polls, is in a strong position to win a general election, if held. This could potentially lead to a chaotic Greek exit (Grexit) from the Eurozone.
Samara is taking a gamble. He hopes that a win will unlock the final bailout payment from the IMF and EU. These have been bogged down in Parliament and a win should allow the government to regain the initiative. Syriza has toned down its previous anti Euro rhetoric. Nevertheless, there will be plenty of scope for argument as it presses hard for debt relief. A stand off could mean new calls for an exit from the single currency.
“At that points, all bets are off,” says Philip Aldrick in the Times. “The anti-austerity revolt in Greece could easily spread. Economics and politics keep getting in the way of finding a … lasting way for 18 disparate nations to share a single currency.”
The pressure in the Eurozone is now returning to the economic foreground. The European Central Bank is debating quantitative easing but that really is just looking like a side show. The reaction from the EU was typically inept, with their economics commissioner, Pierre Moscovici, thinking markets should have been reassured by Samaras’s move.
They weren’t re-assured… and the turmoil at the Euro’s periphery will no doubt spread alarm bells elsewhere as we move in to the New Year.