German stock market is not affected by the Greek debt revolution while Athens is running out of time

Mario is pointing the figure to Greece today in Frankfurt. Mario Draghi, President of the European Central Bank (ECB audiovisual services, 2011)

Mario is pointing the finger to Greece today in Frankfurt.
Mario Draghi, President of the European Central Bank (ECB audiovisual services, 2011)

More than a week has passed since the Greek elections and the main European markets, except for the Greek one, do not seem to be influenced to a great extent by the victory of the left-party SYRIZA. The attempt of the Greek Prime Minister to calm down not only the markets but also the European leaders about his intentions not to exit the European Union and not to turn to Russia for financial aid has proved positive.

This climate is not just directed by Alexis Tsipras’ sayings but is more due to the announcement of Mario Draghi, the president of the ECB, about the implementation of the new monetary policy programme, Quantitative Easing (QE), that finally came to the light a few days before the Greek elections and it hasn’t been fully incorporated into the markets.

Furthermore, the President of the ECB doesn’t want Greece to spoil his efforts to revive the Eurozone economy and is not going to let a Greek bailout plan being promoted during his meeting today with the Greek Finance Minister.

Europe vs. Greece

The performance of the main European markets expressed by their respective European indices is slightly negative (except for the German index) in the period between 26 January and 02 February.

During this week, Deutsche Boerse AG Stock Index DAX (Germany’s main index- traded on the Frankfurt stock exchange) increased by 0.94%. However, CAC 40 which represents the French market dropped from 4675.13 to 4613.09 revealing a decrease of 1.33%. The same trend is followed by FTSE 100, the index that contains the 100 most highly capitalized companies traded on the London Stock Exchange, which closed at 6764.83 at the end of 02 February, thus decreasing by 1.28% since 26 January.

Looking things from a European level and perspective through the STOXX Europe 600, an index that represents large, mid and small capitalisation companies across 18 countries of the European region, we see that this index dropped by just 1% during this period; it is thus clear that the outcome of the Greek elections had rather small impact on the European markets.

However, the market that experienced the greatest drop and is by far the most volatile compared to the aforementioned markets is the Greek one represented by the Athens Stock Exchange General Index. More specifically, the Greek index dropped by 7.63% in only 7 days. This implies that the Greek market has been influenced by the elections more than the rest European markets.

The effect of QE in the European markets

The policy programme that the ECB announced has not yet been put into implementation but it has already affected the European investors positively and has not let the European markets drop dramatically due to a possible “GREXIT”. Moreover, the fact that it came and it came “big” (1.14 trillion euros) at a moment that deflation figures become apparent all over Europe brings hope and lowers the negative effect that the victory of Alexis Tsipras alone would have. This programme has substantial potential and is greatly appreciated by the European community that hopes to see inflation rates rising again up to the desired level of close but below 2%.

February 16: a crucial day for Europe

February 16 is a very important and crucial date not only for the markets but also for all the European citizens and especially the Greek ones. The Eurogroup will take place then in Brussels and the main discussions between the European nations will include Greece’s debt. Will the Greek government be able to convince the rest of Europe that they have a solution-restructuring debt programme that is viable and beneficial for both sides?

Till then, the Greek government is travelling around Europe to find allies to support its programme. The Greek Finance Minister Yanis Varoufakis has already visited Paris, London and Rome in order to discuss with his counterparts and reveal details of the plan that Greece is going to put on the table in a few days. The countries visited are well-targeted by the Greek government which is focusing on the fact that they also want to stop austerity measures as the only solution to the financial crisis.

However, the next stop is Frankfurt where Yanis Varoufakis will meet today Mario Draghi to discuss about Greece’s debt in an already strained climate. The ECB has already announced its intentions about the refusal of the Greek Finance Minister’s plan who wants to issue short-term Treasury bills of 10 billion euros in order to finance the economy for the next few months. His plan is going to fall short against Mario Draghi who knows that Greece greatly depends on ECB’s decisions and money and will be very “tough” against the Greek government’s representative. Nevertheless, it is quite certain that there will be some constructive discussions and possible alternative proposals between the two men.

Let’s just hope that our European leaders will be reasonable in the end and not let Europe drop into another recession. That would be a possible fruit of too long Greece-EU negotiations or Berlin’s lack of will to make a step back; please the new Greek government and most importantly convince Marine Le Pen’s and Podemos’ electorate that Europe does not work only as a multinational company but as a political construct as well.

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