Analysts weigh political risk

Rating agencies assess positively the prospect of a coalition government after the elections

Analysts weigh political risk

A coalition government after the second round of elections in the summer is the main scenario for investment firms and rating agencies, with the whole process expected to be difficult and time-consuming, resulting in possible delays in both the recovery of investment grade and the implementation reforms and investment promotion.

However, they see no increased political risk in Greece. The country’s political landscape is different from that which in the past had fueled fears of a “Grexit,” led to capital controls and the closure of banks and the stock market. The anti-European element is no longer there, as all major parties seem to recognize the benefits of good relations with the institutions of the European Union, the Recovery Fund, the return of the economy to surplus and the recovery of investment grade.

Therefore, what rating agencies are mainly looking at is not the possible composition of the government, but the fact that there will be a continuation of policies and the improvement of Greece’s fiscal course.

“We expect continued policies as the Recovery Fund provides incentives to continue reforms, however, a prolonged election cycle could lead to some delays in implementing reforms,” Nichola James, co-head of sovereign ratings at DBRS Morningstar, told Kathimerini. The markets – mindful of the days of Grexit risk – do not seem to see increased political risk in Greece, despite the fact that as things stand now, there may be a coalition government that could take some time to form.

“Given the current context, the next government is not expected to pursue a radical economic agenda. Markets seem to think so, as the spread on the Greek 10-year government bond remained flat after the election date announcement. The fact the Grexit risk remains at a historically low level is helping reassure markets. Euroskepticism is also at a low level, with Eurobarometer surveys showing growing support for EU institutions,” Oxford Economics senior economist Paolo Grignani points out.

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