Greek rally - dead on arrival

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By:
Nathan Collins, Euromoney Skew
Published on:

Voters in Greece made the "right" decision, supposedly, but markets are still in free-fall.

Ouch. It’s fair to say that nobody was expecting a particularly pronounced relief rally from the pro-bailout parties’ narrow win in the Greek election, but surely all but the most pessimistic were hoping for better than that.

It’s not that the dips on indices have been huge; it’s just that they haven’t been able to maintain any meaningful gains – even just a few hours after opening. The Euro Stoxx 50 is down by 0.42%, and the FTSE by 0.14%. Once again, however, the real cause for concern is Spain. The Spanish 10-year yield is continuing its habit of hitting new euro-era highs: the yield is over 7.13% at the time of writing – after opening at 6.94%, so we’re looking at a fairly hefty rise – not to mention the first breach of 7% on this tenor.
 
It looks like investors have been burned too many times by anaemic relief rallies in the past – good news out of Europe just doesn’t carry the same weight it used to. Or possibly, Greece has just lost its power to convince anyone that things are going to get better – no matter what happens. Goldman Sachs’ Themos Fiotakis and Huw Pill have put out a note with a pretty bleak summary of Greece’s economy, as cited by Business Insider:


“Overall, Greece will remain a source of uncertainty due to its macro-dynamics. The country is undergoing extreme economic pressures that are likely above and beyond austerity; prolonged uncertainty have led to a multi-year suppression in confidence and a collapse in credit growth, which has helped compressed the private sector, create supply shortages and has contributed to the lack of investment or privatization efforts, higher structural unemployment and persistent inflation currently observed. Unless this uncertainty of tail events is lifted over Greece, moderate solutions will be prone to marginalization, while extreme and populist views could become ever so prevalent.”


When the eurozone''s financial system is broken at the fundamental level - thanks to the fissures in the single currency''s political framework - no amount of electoral cheer is going to do much to fix it or buoy investor sentiment.