(XPS) Expansys

Fri 04 May 2012

LONDON (SHARECAST) - Greece is holding parliamentary elections this coming Sunday and an inconclusive outcome is the scenario which holds the largest risk for financial markets, according to several experts.

Although the country’s two main parties, Pasok and New Democracy, are expected to garner the most support, many Greek voters are turning to anti-bailout parties promising an end to the harsh austerity measures. In fact, polls show that 10 separate parties could gain entry into the Hellenic Republic’s parliament.

VOTERS DIVIDED

Opinion polls show New Democracy and Pasok together securing about 45% of the vote, so both parties would clearly have to strike a deal if they wished to govern. Then, there is another 20% of the population that is undecided.

While only 13% of Greeks feel that leaving the euro behind would be the right thing to do, citizens are tired of the harsh austerity measures amidst a recession that has caused their economy to contract by 13% in the last three years. One out of every five persons is unemployed and the European Commission estimates that 1,000 small businesses shut their doors every week. Greek belts have been tightening and reports of suicides with notes blaming the crisis are on the rise.

In times of crisis, voters´ decisions often turn away from a political stance and move towards simply being a weapon to punish those in power. In Spain the right-wing conservative party ousted the socialists from the presidency. Yet in France exactly the opposite is expected to occur this weekend with bets for left-wing François Hollande to oust the right-wing incumbent Nicolas Sarkozy. Greece is in much the same situation with its population fragmenting as its political system moves to punish a government that has been ineffectual in easing the pain.

RISKS FOR THE MARKETS: THE EXPERTS SPEAK

This situation represents, according to the experts, a grave danger for the markets. “Far less helpful would be an inconclusive outcome in Greece, deepening the policy vacuum, making already-ambitious growth and debt targets even easier to miss and risking a ‘re-restructuring’ of its debt obligations,” warn economists from Hermes.

Meanwhile Morgan Stanley warns that the future of Greece’s membership in not just the single currency, but the EU as well, is at stake in this weekend’s elections. “If there is no stable majority for a continuation of the current policy path in the new parliament, Greece might abandon the program, the European partners might withhold further aid payments and Greece might decide to leave the euro to monetize her debts and deficits.”

There will be no grace period for any government no matter what party or parties come to power. Athens has until June to identify €11.6bn in savings for 2013 and 2014.

UBS warns that neither the EU nor the IMF would be apt to renegotiate the second bailout terms. If Greece fails to meet the loan conditions, the organizations could easily decide to halt payments.

“Most of the danger to markets comes from the post-Greek election environment rather than the post-French one. The markets are clearly not looking at this in the right way, nor to the proper degree either. There is a big risk here,” the Swiss broker concludes.

Forecasts
Year Ending Profit (£m) EPS P/E PEG EPS Grth. Div Yield
30-Apr-12 2.63 0.23p 8.7 n/a -24% n/a 0.0%
30-Apr-13 4.09 0.35p 5.6 0.1 +55% n/a 0.0%
30-Apr-14 4.92 0.43p 4.6 0.2 +20% n/a 0.0%
Nanny knows best!

LOL

He dreamt