Greek Election Fall-out

John colour

The financial markets reacted with concern as Syriza’s victory in the Greek election caused investor uncertainty.

In a volatile start to the week the euro briefly touched an 11-year low against the dollar, before recovering to trade almost 0.7% higher against the US currency.

In Athens, the stock market closed 3.2% lower, with particularly heavy losses for Piraeus Bank which fell 17.6% and Alpha Bank which fell 11.6%.

Syriza leader, Alexis Tsipras has attempted to calm investors’ nerves by saying that he wanted negotiation, not confrontation, with international lenders over the repayment of the countries debt.

The Greek debt is not the only consideration that needs to be considered when/if the negotiations begin.

If the Eurozone agreed to negotiate and Syriza were to win the negotiations, other anti-austerity parties would look more credible to voters. The most notable of those parties is Marine le Pen who is gunning for the French presidential election and who, if elected, would certainly test the markets resilience and nerve to a far greater extent than the Greeks.

On the flip side, if Syriza were to lose in talks with Brussels and Berlin, and the final separation of Greece from the euro were to take place, investors might well pull their savings from any eurozone country where nationalists are in the ascendant.

So with all the uncertainty, why are investors not in a state of frenzied panic? Why have the euro and stock markets bounced a bit? One possible explanation is that investors believe the eurozone would actually be stronger without Greece, so long as no other big country followed it out the door.

However the most plausible reason is that investors believe reason will prevail, and Berlin will sanction a write-off of Greece’s excessive debts.