Neil Davies, Head of Trading at PlutusFX, takes a look at the Greeks.
Just days after voting in a leftist government, the Greeks might be already rueing their decision as domestic financial markets collapse.
The Euro hit its lowest level for over a decade on Monday in the wake of the a potential Greek Euro exit, or debt default, hitting a low of EUR/USD 1.114 and GBP/EUR 1.3465, though has since bounced to 1.131 and 1.336 respectively.
Alexis Tsipras, the anti-bailout governments’ Prime Minister, has his work cut out to say the least. Keeping his electorate happy and also keeping his Euro partners on side is going to be a little harder than pushing a square peg into a round hole. His first strikes though are firmly on the side of the left wing electorate. He has pledged to halt the full privatisation of Piraues Port Authority (PPA), a sale made as part of the bailout agreement and also stopped the planned sale of the 51% stake in Public Power Corporation (PPC), the country’s biggest utility. Tsipras also plans to reinstate a raft of public sector employees and raise pensions. It’s unclear who’s money will be used to do all this, though clearly it’s not going to be Greek money. They haven’t got any, being a quarter of a billion Euro’s in debt.
The fallout has been dramatic. PPA shares down 8%, PPC down 13%, Greek Bank shares down 43% since Sunday and Greek 5 year bonds now yielding 13.5%. That’s a higher yield than debt in highly geared North Sea exposed Oil companies.
It will be interesting to see how this plays out, but something has to give and if the out is default and/or a Greek Euro exit, then expect volatility and hopefully the chance for a cheap villa on a Greek island.