Markets ‘to recover’ if Tsipras returned to power

Greek financial markets are likely to rebound strongly in the final quarter of the year despite their current malaise. Former Greek prime minister Alexis Tsipras last week resigned which paved the way for snap elections next month.

The ensuing uncertainty in the absence of any form of stable government has weighed on Greek financial markets with bonds being sold off and significant falls in the equity market.

Tsipras’s political gamble, while currently deepening uncertainty in Greek markets, will likely see the Syriza leader returned to power which should lead to a strong recovery in the latter part of the year, according to Merrion Stockbrokers chief economist Alan McQuaid.

“Although Greek debt looks vulnerable in the short-term, our gut feeling is that Tsipras will return to power, most likely in coalition, with a pro-bailout mandate, leading to a strong rally in Greek paper in the final quarter of the year,” said Mr McQuaid.

Tsipras was elected on an anti-austerity platform but faced revolt from a number of Syriza hardliners after accepting a bailout offer which pulled Greece back from the verge of a euro exit.

The party leader has since described the bailout as a bad deal in which he does not believe but which was the best he could secure in the circumstances.

The deal with Greece’s creditors unlocked €82bn to €86bn of bailout funding but hoisted a raft of reform measures on the country and its already beleaguered citizens.

“Greek bank bonds have dropped like a stone as the prospect of painful haircuts came to the fore, potentially heralding a new era for senior debt investors who have previously been protected throughout Europe’s various financial crises.

“The Eurogroup’s statement after approving Greece’s €86bn third bailout increased the chances of losses being imposed on senior debt by placing senior bondholders at risk of bail-in while explicitly excluding depositors.

“The template over the last five years may have been to leave senior untouched, but the Eurogroup’s statement clearly shows this is coming to an end, with senior bonds subordinated to depositors,” Mr McQuaid added.