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Goldman Sachs warns clients for political risk in Greece

Goldman Sachs: political risk in Greece

Goldman Sachs warns in a note to clients that this weekend's European parliamentary elections mark a focal point for political risk in Greece

THETOC TEAM
ΓΡΑΦΕΙ: THETOC TEAM

Goldman Sachs warns in a note to clients that this weekend's European parliamentary elections mark a focal point for political risk in Greece, as has been highlighted by Greek parties domestically.

"They could threaten the stability of the government in two, arguably not extremely likely, outcomes: A sharp decline in popular support for PASOK, the junior coalition partner, at levels below current polling rates of about 6%. This could lead to an open question towards the current party leadership and a defection of MPs from the party and the parliamentary government majority," GS clarifies.

"Given the thin government majority in the current parliament, such a defection could ultimately result in a higher risk for elections ahead of the scheduled deadline in the summer of 2016. A landslide victory for Syriza, the main opposition party, at ratings close to 30% and at a difference north of 3% from New Democracy, the senior government coalition member. Such a result would allow Syriza to argue that the people of Greece desire an imminent government change. And it would boost Syriza’s confidence that, in the event of elections, they would be close to assuring a large enough majority to form a government (or be the senior coalition member of a government)," GS argues.

Impact on markets: What happens in peripheral assets if Sunday’s results do turn out to be destabilising for Greek politics?

"At first, the current unwinding of positions can lead bond yields wider across the periphery. But, in the medium term, it is worth remembering that, as opposed to 2010 and 2011, the Euro area now has the institutional infrastructure to avoid broad-based contagion (such as the ECB’s OMT facility). And Greece’s case is unique enough for contagion risks to be limited," GS answers.

That said, GS also argues that the municipal election results last Sunday do not imply a high likelihood for such an event and there is also an upside risk.

A balanced result this Sunday can also be a catalyst for a large-scale debate within Syriza that accession to government requires a shift towards moderation and pragmatic solutions first. Such a shift would eliminate 'Euro-exit' risks at this stage and help Greek government bond yields decline anew from current stretched wide levels of 6.8% (10-year rates).


source: efx news

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