Davy Research |
|
Market Comment
Fresh Greek elections likely after negotiations to form government fail
14 May 2012
Conall Mac Coille
Greece looks set for another election in June as negotiations over the weekend failed to yield any significant possibility of a government being formed. Fresh opinion polls suggest that Syriza, which is opposed to the bailout package, may become the largest party in a new election. Syriza leader Alexis Tsipras appeared to adopt an intransigent position over the weekend, apparently refusing to negotiate even with parties seeking to alter the terms of the bailout package.
A total of €32bn EU/IMF funding had been due to be disbursed to Greece by the end of Q2. However, a June election will require a delay in the entire disbursement, with the IMF now unable to conclude its May review of the funding package. Clearly, the Syriza party sees no contradiction between its own position on the bailout and the sharp reductions in public expenditure that will be required should EU/IMF funding dry up.
EU officials suggested over the weekend that a Greek exit from the euro could be technically managed — language clearly aimed at Greek politicians who have suggested that such a scenario would be too costly for the euro area itself. And with most Greek voters still in favour of euro area membership, the issue will clearly be key in any new election. So brinkmanship over Greece's continued participation in EMU, and adherence to the funding package looks set to intensify in the coming months.