GREEK SAGA AND EU WORRIES - NERVOUSNESS PRIME EMOTION
By Ruma Dubey
“To be or not to be?”
That’s the big question the Greek face today. Whether it will remain as a part of the Eurozone or make an exit is a huge worry. Plunging oil prices apart and maybe-maybe not exit of Greece (coined as Grexit), the market is also awaiting Europe’s core CPI and unemployment rates – scheduled to be announced today.
First the issue of Greece. For us living so far away, mentally and physically, from Europe, it is quite difficult to wrap our mind around this entire “exit” from Eurozone (EZ) process. Most of the Street here say, “ kuch Greece ka problem hai” and that’s their logic to explain the falling market. But dig deeper and most do not know what this is all about. So a quick tutorial on the same….
Greece will be going to the polls on 25th Jan and in all probability, the growing popularity for its leftist party – Syriza is stated to be the main reason. This party had released a set of manifestoes which could mean tearing up European Unions (EUs) austerity rules and too many things which the EU cannot simply afford. The first thing it plans to do if voted to power is that will stop paying its creditors/bondholders what was agreed upon, expecting in turn that the ECB will buy up all the debt from the Government directly. It has also promised free electricity (sounds sooo AAPish), increase taxation on the rich, create massive employment opportunities to be funded by the EU, writing off bank debt of those who cannot afford it. In short, if it comes to power, Syriza will demand things which the EU will neither agree to nor could afford to agree for.
Many say that this is a “who will blink first” kind of a match – Syriza hopes that with its threats, it could arm twist Germany to waive off debt and all the EU obligations to prevent its exit as it could send the wrong message to the others in the Eurozone that there is an exit option. On the other hand, Germany wants to see how far Greece will be able to take this bluff. The same situation was seen in 2012 and that time too, Syriza was rumoured to emerge winner, only it came in second place. But this time around, Germany might not blink as the Greek economy is in complete shambles and it simply cannot afford to give away alms any more. And therein lay the real threat – if Grexit works then the other EZ debtor-states may think about doing the same thing and that will be something which could jeopardise the very existence of EZ. Currently it is more politics and less of economics at play in EZ. This uncertainty will continue till poll results come out after 25th Jan.
Greek woes apart, the market is also nervous about the core CPI and unemployment numbers of Europe expected today at 3.30 PM (IST). There is growing fear that the EU could be headed for deflation and this in turn has sparked off worries that the now growing US economy might not be resilient enough to face this new crisis. Also falling oil prices and stock market declines across the world have spread a sense of panic on the Street. Currently, investors across the world are anxious and have lost a fair bit of confidence.
The markets have not crashed today but there is a sense of disquiet, a palpable sense of nervousness. Thankfully, the European inflation data will come in after our markets close. So let’s watch out for that data which will decide the course of the markets tomorrow.