Senior analysts and investment managers have labelled the outcome of Greece’s election as anything but a good result for Europe, with the fallout expected to fuel further market uncertainty that will be felt in Australia.
Yesterday, projections for the Greek election found the pro-austerity New Democracy party had taken victory with 29.66 per cent of the vote (129 seats), followed by Syriza with 26.89 per cent (71 seats) and PASOK with 12.29 per cent (33 seats), with 99.03 per cent of the vote counted.
“I don’t think this is a good result for Europe really at all,” Colonial First State Global Asset Management investment market research senior analyst James White told InvestorDaily.
“Effectively what it allows is for the Syriza party to act relatively irresponsibly. I suspect that if they had of won the election, the decisions they made and the positions they take, they would be held responsible for. So I think it’s very easy for them to behave irresponsibly now.”
White said he would be unsurprised if those in the eurozone, such as Germany, demanded that Syriza’s name was on the next treaty.
“In that environment, there needs to be some accountability,” he said.
“I think people maybe have jumped the gun on what’s happened, from the sense that yes, New Democracy has won the most votes, yes there are enough seats in parliament if PASOK chooses to become an ally of New Democracy in the coalition.
“But I think we shouldn’t jump to that conclusion too readily, because effectively it would be like Labor joining a Liberal coalition.”
NAB Private Wealth investment strategist Nick Ryder said the election result was about “as good as could have been expected by financial markets”.
“In the short term, it removes the threat of an immediate meltdown of the euro, but over the medium to longer term very little has changed,” Ryder said.
“Given the dire state of the Greek economy, mass bank recapitalisations and a sovereign default appear inevitable. Now that the Greek elections are out of the way, the focus of the euro crisis is likely to shift from Greece to the larger European economies of Italy and Spain.”
He said assuming a stable coalition government could be established, Greece still faced many difficulties.
“Its budget has run off track and at least an additional 1 billion euros in financing is needed in the short term, compared with what was originally budgeted for, due to worse-than-expected economic conditions,” he said.
The Greek economy was now expected to shrink by at least 6 per cent, rather than the 4.7 per cent forecast in the austerity program, he added.
Fidelity Worldwide Investment portfolio manager Paul Taylor said the euro crisis was “firstly a crisis of confidence”, with the impact for Australia being primarily focused on the “dislocation of European and global debt markets”.
“This could potentially impact Australian corporates with higher debt levels as well as Australian banks seeking wholesale funding,” Taylor said.
“Currently Australian corporates have very low debt levels and Australian banks have been reducing their dependence on wholesale funding due to the very strong growth in domestic term deposits and low levels of system credit growth.
“The negative impact from a crisis of confidence would likely be very short term in nature and if anything would create a short-term buying opportunity.”
He said the second and broader category the crisis fitted into was a “global sovereign debt crisis”.
“The global sovereign debt crisis includes the significant debt issues of many European countries, but also the debt issues of many developed countries right around the world, including the United States,” he said.
“Debt levels of many developed markets are too high and need to be brought down to more manageable levels over a prolonged period of time.”
In White’s view, the local impact would be felt at the asset price, bond price and Australian dollar level.
“I think we’ve seen over the last three years that despite everything, the impact on the Australian economy is generally quite limited,” he said.
“I don’t think this itself is any sort of closure on it at all. All I would say is that we’re starting to get some slightly better data out of China, so that would be the one global driver of the Australian market that could mean we move away from Europe, but I mean at the moment, there might be a short bounce but over the next couple of weeks, the markets will be very concerned about how this will play out.”
