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Be Worried, Be Very Worried is not a typical title for a Wall Street research report, so you have to take note when that’s what UBS is saying about tomorrow’s Greek election.Now to understand the stakes of the Greek election, you basically have to understand one thing: There’s been a big austerity/reform/bailout package agreed to, but full implementation is a long way off.
While the mainstream parties support ongoing implementation, there’s growing support for more radical parties that don’t support the current path.
If they do well enough to prevent the mainstream parties from having a clear majority problem, the whole deal may be thrown into chaos.
Anyway, we’re going to bullet and quote the note by Stephane Deo, Justin Knight and Beat Siegenthaler.
- The most likely scenario, still, is that the mainstream parties PASOK and New Democracy win enough votes to form a coalition government after the election, whereupon they will support the current austerity deal.
- But popular opinion is moving away from them and it’s impossible to know if they’ll have enough seats to get a majority together
- Furthermore, it’s possible that one of the parties could walk away from a coalition talks.
- And yet even more, the main parties have been distancing themselves form the austerity agreement during the campaign. They might have a hard time walking that back.
- “In this way, the election campaigns as they have been conducted so far mean that the newly elected cabinet will probably have the choice between making a rapid U-turn and implementing the MoU quickly, or trying to keep its electoral promises in the face of the likely opposition of the Troika. “
- There’s still a big risk, if Greece doesn’t implement reforms fast that the IMF will walk away, and refuse to disburse more aide.
- If funding doesn’t happen, Greece would run out of cash. Expect social turmoil.
- If that happens, you may see Greece introduce its own “quasi-money” — IOUs of some sort.
- And a Greek exit can’t be totally discounted.
Bottom line, there are a lot of scenarios that should worry the market, and could increase risks for the Euro overall, potentially causing further capital flight from the periphery.
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