SYRIZA Trapped Between ‘Rock and a Hard Place’ as April Deadline Approaches
March 20 2015 - 11:45AM
Business Wire
Coalition government may have to choose between avoiding
economic collapse and its own survival
Time is running out for Greece and its official creditors,
according to new analysis released today by IHS Inc. (NYSE: IHS),
the leading global source of critical information and insight.
With no access to bond markets and increasing funding pressures,
Greece desperately needs official funds to avoid a default and the
coalition government may be choosing between its survival and
economic collapse.
“The SYRIZA-led coalition is trapped between a rock and a hard
place,” said Diego Iscaro, senior economist at IHS Global Insight
in an IHS briefing at its Parisian headquarters. “Even if an
agreement is reached, there will continue to be significant
uncertainty regarding SYRIZA’s ability and willingness to comply.
Moreover, the stability of the SYRIZA-led coalition may be
compromised if the government ends up giving up on many of the
promises made before the election.”
For more info about our economic data, check
out IHS Connect
Chance of Greece not reaching a deal: 40 percent
IHS believes that there is a 40 percent chance of a deal not
being reached by the end of April.
Although both parties are likely to reach a deal, the
confrontational tactics used by the SYRIZA government and its lack
of experience mean that a collapse in the negotiations should not
be discarded. Pension, VAT and labor reforms will all present
difficult challenges for negotiations. Rising tensions between
Greece and Germany, the new government’s lack of experience, and
relaxed markets are all reasons to be concerned about Greece’s
ability to agree and implement reforms.
A failure to obtain official funds would surely result in Greece
entering a default, possibly as soon as the second quarter of 2015.
If this scenario materialises, Greece’s Eurozone membership will be
in jeopardy.
If Greece enters a default, the European Central Bank (ECB) is
expected to stop its support for the financial sector. “Without the
ECB’s support for its banks, the economy would suffer an acute
shortage of liquidity,” Iscaro said. “A Eurozone exit could become
the only alternative for Greece.”
Greece’s production structure shows no benefit from
Grexit
Greece’s economic structure suggests that the economic benefits
from leaving the Eurozone will be limited. Greece’s manufacturing
base is shallow, while the share of manufacturing and tradable
services in the economy is below 25 percent of the economy.
Moreover, even if the nominal exchange rate depreciates, it is
likely that higher inflation will more than counterbalance the
impact of the weaker currency on the real exchange rate. This
suggests that Greece’s cost competitiveness position may not
improve as much as desired under a Greek exit scenario.
Firewalls to contain impact
If Greece ends up leaving the Eurozone, IHS estimates the impact
on the rest of the area will be limited by the firewalls put in
place in recent years, such as the European Stability Mechanism
(ESM) and, in particular, the ECB’s outright monetary transactions.
The impact of a Greek exit on bond markets will also be dampened by
the recently announced quantitative easing program. However, it is
also likely that markets will question the future Eurozone
membership of countries where anti-austerity parties gain in
popularity. These concerns will certainly increase if the Greek
economy performs better than expected outside the Eurozone.
About IHS
(www.ihs.com)
IHS (NYSE: IHS) is the leading source of insight, analytics and
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