The element of political risk

By Alexis Papachelas

I don’t know if 2014 will be considered a success story for Greece, but I have heard from many serious people who are not blinkered by politics that they believe this could be a year of stability and of the start of the country’s recovery. There are enough signs to suggest that the economy has hit rock bottom. That is not necessarily someone’s doing. Sometimes it is just the forces of nature at work and it seems that the current level of GDP is where the country’s descent will end. Of course there are those who deny that is the case, especially if they believe that the cleanup of several crucial sectors is long overdue. However, everyone would agree that the economic recovery will not entail an instant improvement in the unemployment rate.

The second observation made by market experts is that foreign players see something in Greece that we do not. These are people with cash who believe that Greece abounds with opportunities and are ready to invest. The lead, as usual, is taken by the opportunists in the shape of various funds willing to take greater risks. These are players who have studied Greece extensively and who know its disadvantages, such as the inefficient public administration and the reactions that investments inevitably stir. Despite this, however, they continue to show a keen interest, maybe because they believe that the country’s lenders will eventually make one last grand gesture on the debt issue.

That, however, is where the good news ends, because we also have to factor in the element of political risk. On the one hand the government has failed to lower expectations regarding its performance in the European elections and, on the other, the opposition has turned the political arena into a battleground. If we were talking about a shift in power between, say, Christian democrats and social democrats, there wouldn’t be an issue. Instead, we are seeing threats and heavy-handed rhetoric and cannot say with any certainty what the political landscape will look like after May’s polls. A large section of the public has run out of patience and is angry; it is almost impossible to find a single person who is not fed up.

And this is where the risk of self-fulfilling prophecy lies: Just as the economy starts to reach an equilibrium, the political scene will be on shaky ground and the backslide will continue. As is usual in such cases, uncertainty and fear over political developments will freeze the markets and therefore intensify the political instability. How can we end this vicious cycle and make 2014 the year that Greece restarts? Well, that is the big question indeed.