US indexes open slightly higher on last trading day of 2014; Oil price resumes its …

31 Dec 2014 | Author: | No comments yet »

Can Greece really defy austerity?.

ATHENS, Greece (AP) — The campaign for Greece’s general election next month is now underway, with the country’s conservative prime minister claiming his anti-bailout opponents would “lead the country to default.” Antonis Samaras was responding to televised remarks by an official of the left-wing Syriza party that it would freeze interest payments on international bailout loans unless Greece was granted better terms on its 240 billion euro ($291 billion) rescue program.

The Big Question: Now that Greece has called a snap election, which may well see Left-wing Syriza coming to power with a promise to repeal austerity, Alexandre Afonso asks whether this really can be done Stavros Dimas, the candidate backed by coalition parties PASOK and New Democracy, did not receive the 180 votes he needed.Greek stocks stabilized after a volatile day Monday, when the country’s government was forced to call elections that could create more economic turmoil.ATHENS—Greece’s parliament was formally dissolved Wednesday, officially marking the start of a monthlong election campaign which has renewed concerns about political stability in the country at the heart of the eurozone’s debt crisis. Investors worry that the elections might be won by the left-wing opposition Syriza party, which opposes the austerity measures associated with Greece’s international financial rescue deal.

As per tradition, the formal dissolution took place when the chamber’s sergeant-at-arms posted a presidential decree next to the two main entrances of the parliament building in central Athens late Wednesday morning. The Athens stock market plunged as much as 11 percent on Monday before recovering some of those losses to close down 4 percent that day. “An election puts all sorts of doubt on the future of the bailout agreement,” said Stan Shamu, a market strategist at IG Markets. “Potentially markets had already priced this in, but I would still remain cautious around Greece.” U.S. stocks opened lower and stayed down throughout the day. The decree, cosigned by President Karolos Papoulias and Prime Minister Antonis Samaras, sets Jan. 25 as the date for new elections and announced that parliament would reconvene on Feb. 5 following those elections.

The Standard & Poor’s 500 index lost 10.22 points, or 0.5 percent, to 2,080.35 and the Nasdaq composite fell 29.47 points, or 0.6 percent, to 4,777.44. Greece’s leftwing opposition party opposes the country’s draconian austerity measures and has promised to roll back many of the reforms Greece has undertaken in the past four years in return for €240 billion ($292 billion) worth of international aid. Does this mean that Greece would be allowed to depart from the harsh austerity course it has been following for the last four years if Syriza came to power?

However, it remains unclear whether either party will garner enough popular support to rule on its own, or be forced into a coalition government, something that is further stoking fears of an extended period of political uncertainty. The market is also expected to be quiet Wednesday ahead of New Year’s Day holiday, however oftentimes the last trading day of the year does see a modest burst of trading as some investors shift their portfolios around for tax purposes. On the fringes, Syriza (on the Left) and Golden Dawn (on the extreme Right) have capitalised on popular anger against austerity, and largely based their programme on the rejection of the adjustment programme.

The cornerstone of Syriza’s economic agenda is to restore pre-crisis spending and consumption levels, drawing on the idea that aggregate demand is the main problem of the Greek economy and not its flexibility or competitiveness. In other energy commodities, wholesale gasoline was little changed at $1.454 a gallon, heating oil rose two cents to $1.869 a gallon and natural gas fell 10.5 cents to close at $3.094 per 1,000 cubic feet. Besides a 13 billion welfare package, Syriza also proposes to cancel a number of liberalisation reforms implemented under the referendum and revert to the status quo ante. It is very uncertain that international lenders would agree to such a dramatic reversal in the policies they have been championing over the last five years.

Syriza says it wants to restore Greek sovereignty over the dictatorship of creditors, but this sovereignty would be severely limited if international lenders turn off the tap. Since Syriza has declared its commitment to staying in the Eurozone, any negotiation will necessarily involve concessions that it may be unwilling to make in the light of its electoral promises and high electoral volatility. The electoral collapse of PASOK (from 43 per cent in 2009 to 4.5 in the latest polls) has shown that angry Greek voters are more than ready to sanction the parties who betray their promises. The role of the ECB has been central in this respect, and Greece is more clearly perceived as a special case with a separate set of problems than Spain or Italy.

In many respects, this seems to be the only way for Greece to solve its problems in the long term, as the path of internal devaluation it has followed has dragged down its economy without actually boosting its exports. Even if Jean-Claude Juncker and other European leaders have warned Greek voters against the dangers of voting “the wrong way” (sic) for anti-austerity parties, it would still be politically difficult to undermine an elected government at a time when Eurosceptic support is increasing in many parts of the European Union.

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