International currency specialist HiFX is warning that the initial reaction of relief to the results of the Greek elections will be short-lived.
Director Jason Gaywood says of the election and the wider issues facing the EU,
"Politicians globally have lauded the Greek election result as the best way forward for Greece, the EU and the world economy. Markets, too, have signalled relief as the pro-austerity right wing New Democracy Party gained enough votes to form a Government. Just. Only time will really tell however if Greece can drag itself out of the mire from here but the odds remain stacked against both Athens and the Eurozone as a whole and sooner or later, the fundamental question has to be asked as to whether we can realistically expect one interest rate and one currency unit to work with economies as divergent as Germany and Greece.”
Gaywood believes that the problems are as widespread as they are complicated. In the first instance, he points out that New Democracy still has to form a coalition government and with such a slender majority in the polls, he believes civil unrest is likely to return to the streets of Athens and elsewhere.
“Beyond this, delicate negotiations need to take place to improve the terms of the austerity measures imposed by the EU. Failure here would probably mean the fledgling new government would fail in spectacular fashion and we would be back to square one and let’s remember the firm demands by Angela Merkel that Greece must fulfil its obligations.”
Such a gloomy outlook also pans across other southern European economies. Gaywood’s particular concern focusses on the fact that Spain’s €100bn of aid has failed to improve matters with bond yields topping 7%, unemployment above 8% and a Moody’s downgrade to one notch above ‘junk’ status. And, he adds, that while the situation in Greece may be fixed for now, there are still much bigger problems in the eurozone to be tackled.
Square Mile’s series of informal interviews
'An entirely different beast': How have emerging markets, Asia and Japanese equities evolved over the past decade?
Talking Strategies: In the video below, Jupiter's fund managers discuss how changing tides over the past two decades have resulted in emerging markets, including EMD, and Asia and Japanese equities to become a core part of many wealth manager portfolios....
Spent 20 years with Aviva
Latest news and analysis