Greece avoids an immediate exit, but experts say little has changed

Date: Monday 18 Jun 2012

After a brief sigh of relief at the market open, doubts have begun emerge surround the recent poll results in Greece - While it’s true that the pro-bailout, conservative party New Democracy got enough votes to be able to form a coalition government with the socialist party Pasok, many experts insist that very little has changed.

According to UBS, the outcome “leaves us as we were, with considerable uncertainty”.

Analysts still have many concerns, starting with the possibility that New Democracy and Pasok might not reach an agreement (there leaders are expected to meet this evening). But of more concern is if there really is going to be a renegotiation of bailout measures agreed to with the Troika (European Commission, International Monetary Fund and European Central Bank).

"Even if [this victory] proves slightly more risk positive, I suspect it will be very short lived given the uncertainties over the withheld troika payment from May. Any recovery in prices is an opportunity to reduce risk further", Simon Derrick, the chief currency strategist at Bank of New York Mellon told CNBC following the election result.

Part of the problem, according to Paul Donovan from UBS, is that the situation at hand is far from over: “Random political comments will still impact the markets and I would expect a degree of volatility to persist,” he said.

Alliance Bernstein economist Darren Williams told The Wall Street Journal that “unless they make a radical change, we will be back with another Greek cliffhanger in three or four months’ time.”

Much along the same lines, Morgan Stanley experts say that “not much is resolved from a medium-term perspective.

“Solvency is far from assured and, when Greece approaches a balanced primary budget a year from now, the incentive to attempt to renegotiate the programme even further, threaten default, or even an exit from the currency union, might rise again.”

So, what’s next?

Barclays analysts believe that the entire concept of the Eurozone needs to be replanted. They note that if decisions aren’t made to increase integration, then the euro won’t be able to survive in its current state with its current members.

Meanwhile, the Troika will be traveling back to Athens as soon as the new government is formed. Assuming a New Democracy coalition government, Barclays expects negotiations to take three to five weeks. Interestingly enough, these experts comment that “market reaction to these ‘negotiation’ headlines is unlikely to be too dramatic.”

Citigroup strategist José Luis Martínez Campuzano sasy that the time is ripe for negotiation with Greece talking with Europe, the Old World with the Group of Twenty (G20), Spain with both Europe and the G20 while France and Germany are discussing the future of the euro. “But, at least in the case of the euro, I’m afraid the crisis goes beyond Greece”, Campuzano says.

Citigroup calculates a probability of 50-75% for an orderly exit of Greece from the Eurozone in the following months. Roubini Global Economics pegs the date at the “beginning of 2013”. Greece has bought some time, but expert opinion doesn’t seem to have changed.

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