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Here is Why Greece can be a Bigger Threat to the Market. 1. Two years after a threat of default by Athens sent global markets world into panic mode, the threat is once again looming on the horizon. The likely winner of the Greece‟s January elections seems to be leftaligned opposition Syriza party led by Alexis Tsipras who wants to renegotiate the terms of a 2012 European bailout that rescued his country from default. The problem is that in the last two years European bankers have sold their Greek debts which have in turn been purchased by European government which now hold 90% of that country‟s debt. A default by Greece will hit interest rate of the countries that hold the country‟s debts. 2. Tsipras has pledged that if his party wins the election he would „tear‟ up Greece‟s memorandum with the European Union and IMF. He says [ “We will cancel austerity. Under a Syriza government Greece will exit the bailout. This is not negotiable.” He is seeking the same level of debt relief – 50% -- that Germany secured in 1953, which Greece signed up to despite the death of some 300,000 of its citizens under Nazi occupation. 3. Germany and France are opening discussing Greece‟s exit from the Euro Union. Sigmar Gabriel, Germany‟s economics minister and vice chancellor warned that Berlin wouldn‟t be blackmailed into offering concessions on Greece‟s debt or the terms of the international plan that rescued the country‟s finances. This event comes at a time when Eurozone is in a precarious economic and political state, after years of little or no growth and amid a surge in anti-establishment parties that are challenging governments in many countries. 4. Eurozone is now on a triple dip recession combined with deflation and a Greece exit from the Euro zone will only make matters worse. Greece will have to print its own currency which would be pegged against the Euro. Given the current economic scenario Greece‟s currency would immediately fall making its debt repayment and imports even more costly to service. Youth unemployment in Greece has already touched 62 per cent and its debt as a percentage of the GDP is 177. Dirk Schumacher, senior European economist at Goldman Sachs in Frankfurt says “A Greek exit would create a precedent and it‟s very hard to say what the impact on financing costs for other peripherals would be.” The countries that are expected to be hit the most are Italy and Spain. 5. The crisis may come to a head in March when Greece is due to run out of cash The ultimate showdown could come in July and August, when Greece must repay €6.7 billion to the ECB. A report in Bloomberg says that any country exiting the euro would throw the common currency's continued existence into doubt. Greece‟s exit would spark similar demand from other smaller countries in the zone. ( source bloomberg)
Kalyan srinivasa Sr. Research Analyst Equity Research Desk