It took forever and then it took a night.

7th January 2015

Ian Copelin, Investment Director, my wealth comments “Dr. Rudi Dornbusch, the late German economist, famously remarked during an interview for the US public affairs TV program, Frontline, in reference to the Mexican 1994/5 crisis, “the crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought… it took forever and then it took a night.”

And so it is with the current euro crisis.

Many observers had assumed that both the euro crisis and Greece was over the worst after Antonis Samaras, who has been the Greek Prime Minister since 2012, successfully oversaw many of the reforms required by the ‘troika’ – the name given to the European Commission (EC), the International Monetary Fund (IMF), and the European Central Bank (ECB) which negotiated the terms of the Greek bailout.

While these reforms enabled Greece to return to borrowing from international financial markets last year for the first time since 2012, they came at a price: many Greeks blame Antonis Samaras for the subsequent harsh austerity, deep recession and unemployment above 25%.

With Greek general elections less than three weeks away on 25 January, polls currently suggest that Antonis Samaras’ New Democracy party will lose to Alexis Tsipras and his left-wing Syriza party.

Although Alexis Tsipras has softened his language slightly since the last elections in 2012, he has made it clear that he wants to end the austerity that was required by the troika for Greece’s bailout and ensure that much of Greece’s debt is written off.

While it may be politically easier and beneficial for the troika to negotiate a compromise with Alexis Tsipras if he becomes the next Greek Prime Minister (to try and prevent contagion to the remaining ‘PIIGS’ – Portugal, Italy, Ireland and Spain), a Greek exit, or, as it is commonly referred to ‘Grexit,’ from the eurozone has once again become a distinct possibility due to its political popularity in Greece. By ultimately ripping up the bailout agreement, Greece may be forced to leave the eurozone and default on its debt, even though this may not be the best option for Greece’s long-term economic future.

The Greek stock market has fallen over 25% since 8 December 2014 after Antonis Samaras announced an early vote on presidential elections (which failed to reach a consensus and has led to this general election), while Greek 10-year government bonds yields are back above 10% on concerns that Alexis Tsipras/Syriza will prevail.”