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Saxo Bank: The Syriza Victory Is A Disaster For Europe

Submitted by Saxo Bank's Steen Jakobsen via,

  • Greece in reality has little choice: Comply with the Troika or leave the EUR
  • Syriza's win is a disaster but at the end of day, Greece did what we expected them to do
  • Greece needs to pay EUR 22.3 billion in principal and interest on various loans 

The result was worse than expected whatever the final outcome - the anti-austerity vote is massive, but it could be an empty gesture as Greece in reality has little choice: Comply with the Troika or leave the EUR. I doubt the later will happen with the same vote as the Greeks are tired of austerity but not off being European.

EUR/USD is down 55 ticks as I write, at 1.1145. I expect Greek stock market will be down 5% tomorrow and that Europe overall could be down 2% unless Germany, the ECB and EU comes out supporting a move towards some compromise (which is unlikely this week)

Game theory dictates that some solution will be found which is sub-optimal for all parties, but the risk it will take longer than market have nerves for.

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Syriza did better than expected - making negative reaction more likely

Syriza did better than even the polls suggested - the gap to ND is 10% as I write this, and for the market this is a close call as Syriza may get a mandate to rule alone. (Greek election: Syriza Party set to take power - Source Sky)

It's a disaster for "austerity" and common sense, but at the end of day, Greece did what we expected them to do: Desperation forced the voters into the arms of a left-wing government who's rhetoric reminds me of my youth (many decades ago) in the the 1970s: Comrades, capitalism, imperialism is some of the words I heard on TV interview this evening. It makes makes one smile: "What goes around, comes around".

 Syriza's gaining power is a disaster for austerity and common sense. Photo: Thinkstock
The answer to the market reaction lies in a very different place: most of debt has changed hands since this crisis started from local European banks to EU and ECB through mainly the European Financial Stability Facility, Greece needs to pay EUR 22.3 billion in principal and interest on various loans - a tidy sum as it equals pretty much what what the government pays its state employees (Source: New York times, Nomura and IMF)

The creditors are even interesting: Greece is scheduled to pay the ECB EUR8 bn, with EUR7.6 bn of that coming due in July/August (Let us assume there is some kind of deal no later than June due to this fact!)

Who owns Greek debt?

The (rough) break down of creditors should a Grexit happen is like this: (Source: MacroPolis)

ESM: EUR145 bn in loans. The ESM is by far the largest creditor of Greece. We have "socialised" the risk from bank balance sheets to the tax payers of Europe. It's also the most favorable (to Greece) in terms.
IMF: EUR20.1 bn
ECB:  It has more than EUR55 bn accumulated under the SMP program.
The market will be waiting for the creditors to comment before it makes a big move
It's the German, EU and ECB reaction to tonight result which will rule the market. Greece lost its independence during the peak of the crisis. A debt to GDP of 175% and rising makes anything they do without getting debt relief futile.
This link shows the pain: Greek debt clock 
The FT is already running a headline which reads: "Will Syriza's Tsipras turn out to be a Lula or a Chavez?"
I don't know of course, but what I do know is this:

Europe has had first major sea change politically going the the extremes. I am sure many party leaders in election prone countries: Denmark, UK first and foremost have taken notice.

  • Greece needs to find a lot of money or a compromise before end of June, otherwise ECB is losing face and that can not happen!
Its so much easier to take decisions on other people money, but this time, there are no new pockets to move the "obligation" to:
SNB ran out of time to react week before last, ECB ran out of promises and reacted last week, this week Greece ran out of time (and patience) - next?
The ECB/ESM and EU needs to take decision: Something politicians and systems overall rarely does well.
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The Market Reaction So Far:

There remains a consensus that “things will be ok...” but the early comments indicate the positioning is already starting:

“It is clear that Greece will remain dependent on support and it’s also clear that this aid will be provided only when it is in an aid program,” said Bundesbank president Jens Weidmann said in an interview with television broadcaster ARD. (WSJ)


A message on U.K. Prime Minister David Cameron ’s usual Twitter account, meanwhile, warned that the Greek result will “increase economic uncertainty across Europe.” (WSJ)


French president Francois Hollande hopes for close cooperation between Greece and France following Syriza's win in Sunday's elections in Athens. (AFP)


Germany's opposition Left Party l called the Syriza victory a "sign of hope for a new start in Europe." (The Telegraph)


Belgium’s finance minister said there is room for negotiation with Syriza. Johan Van Overtveldt said on the eve of a Eurozone finance ministers’ meeting that “we can talk modalities, we can talk debt restructuring, but the cornerstone that Greece must respect the rules of monetary union that must stay as it is.” (The Telegraph)


Spain’s anti-austerity party Podemos hailed Syriza win with a dig at Germany. (The Telegraph)


Carl Bildt, the country's former prime minister and foreign minister, said: "Syriza in Greece has won the election by promising that taxpayers in other Euro counties will pay even more to them. Rather daring." (The Telegraph)


Ms Merkel has so been quiet and we need to see what Eurozone finance ministers come up with at their meeting later today.


Market reaction will move like the tide on comments from different vested interest from now on


Greece's position is clear: They were given mandate to “ignore austerity”.


IMF and ECB stance is clear – there is room for talks on maturity and terms but none on substance and doubts about repayment


The EU, being the political animal it is, will look for compromises and short cuts, but at the end of the day this process is running out of time there are no new “pockets” to move the problem to anymore.


Greece needs a haircut anyone can see that – getting it and executing it is probably the biggest single challenge. Unlike what we are trained to believe often there are NO solutions to a lot of the problems we face – that’s the real conclusion on last night election result.

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