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Week Ahead: roaring rally or deafening panic?

Our preview of the big financial events of the coming seven days, including Greece's second attempt at an election on Sunday.

Week Ahead: roaring rally or deafening panic?

Thunderous relief rally as a Greek eurozone exit is averted or escalated market panic as the nation chooses a bailout-defying path to drachmatisation and economic calamity?

Or, after so much market skittishness ahead of this Sunday’s Greek election, could we get something in between?

The polls are inconclusive – or at least may not be a reliable gauge of voter intentions – but they show no party winning an absolute majority either way in this rerun of the inconclusive May elections. Negotiations would be needed in this case, and these could take days (three days per party until a coalition is formed).

An ‘orderly negotiation’...

If poll leaders New Democracy (ND) win, a relief rally could sweep through markets, buoyed by the successful coalition that is subsequently expected to be struck in such a scenario.

But even then any euphoria could be short-lived, tempered by continuing worries over Greece and Spain, as well ND’s attempts to renegotiate the conditions of its aid package with the ‘Troika’ (the European Commission, European Central Bank and International Monetary Fund).

This though, as analysts at Societe Generale have put it, would at least be an ‘orderly negotiation’, with the Troika willing to make some concessions.

...or a ‘disorderly negotiation’

A victory from the more radical, but increasingly popular, Syriza Party (ranked a close second in the polls) would be more tricky, entailing a ‘disorderly negotiation’. Markets could tumble Monday morning in this scenario.

Syriza leader Alexis Tsipras is determined to cancel Greece’s bailout and adapt a new plan, which includes lower taxes, bigger pensions and a higher minimum wage. As a result the government’s next aid package could be suspended, potentially bankrupting the country and forcing it out of the euro.

But Tsipras, who has no experience in government, will need partners to form a majority coalition. To get the Pasok party on board – third placed in the polls – he will need to moderate his proposals. 

The fall-out from a Syriza victory would likely raise the pressure on peripheral dominoes Italy and Spain, pushing the pair closer to bailouts that Europe cannot afford.

If all of these negotiations are unsuccessful, then the Greeks can simply vote again at the end of July. Cue more damaging market volatility in the meantime.

A final, conclusive result is highly unlikely on Monday morning. And besides, investors will be looking for their next major news hit – a crucial meeting of EU leaders at the end of this month.

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5 comments so far. Why not have your say?

PAYE taxpayer

Jun 15, 2012 at 12:30

Why does Citywire continue to persist in behaving like the BBC and saying that Greece leaving the Eurozone is 'economic calamity'? Send Mr and Mrs Greece to the Citizen's Advice Bureau. Returning to Drachma It is the best thing that can happen to Greece (and Spain to peseta) and flourish again?

If they vote to stay in Euro, then let their Faustian pact bring all the misery it can to the poor people of Greece. And UK can welcome the remaining wealthy Greeks into our country as prosperous immigrants.

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John Lacy

Jun 15, 2012 at 13:23

If your scared of the Greeks look west to the USA and get even more nervous

Only 3 TRILLION dollars invented so far and still rising

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Harry Brooks

Jun 16, 2012 at 09:26

The only surprise here is that somebody gets paid for writing these pointless pieces. We all know all this already. The euro seems to me to be a problem without a solution. It's like a worn out car. The owners are running out of money to fix it, and they can't afford a new one so they'll keep driving about in this smoking wreck — holding up everybody else on the road. I don't know about the rest of you who read this forum but I have a bad feeling that the 'euro crisis' is going to go on for YEARS...

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Robert Hope

Jun 16, 2012 at 10:41

I found this article interesting and informative. We shall all be affected by the Greek election one way or another, so it is sensible to follow events as closely as possible.

For anoyone like myself who is going to have to buy large amounts of euros in the near future an understanding of the day-to-day developments in the crisis is essential.

Thank you, Citywire!

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Anonymous 1 needed this 'off the record'

Jun 16, 2012 at 13:36

The question mark headline of this article is so much like most of the news these days.

Wait a couple of days until the actual result is the news. Then there will be something to report &, if necessary, make personal comments about.

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