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Sunday 24 September 2017

Eurozone breakup threat reaches all-time high as new Greek government sets out its stall

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As Greece, led by new prime minister Alexis Tsipras talks with the troika, analysts describe the two as an “unstoppable force meeting an immovable object”
As Greece, led by new prime minister Alexis Tsipras talks with the troika, analysts describe the two as an “unstoppable force meeting an immovable object”

Peter Spence

The formation of a new left wing Greek government has elevated the risks of a eurozone breakup to levels "significantly higher than at any point in 2012", according to UK bank Barclays.

While 2012 is widely viewed as the height of the eurozone crisis, a cocktail of political populism across the continent and the prospect of a deflationary spiral has now elevated the risks of a break-up even higher in 2015.

"The risks have also risen as the periphery, especially Spain, is aligning itself with the views of several countries in the core of granting few concessions to Greece on a new programme," Francois Cabau of Barclays said.

Syriza leaders view the burden of debt imposed on Greek shoulders as far too heavy to pay, and have sought some form of relief.

They will clash with the so-called troika on the matter. Jan von Gerich, a strategist at Nordea, has described the coming confrontation as an "unstoppable force meeting an immovable object".

The new government has implemented new policies in a matter of days that run contrary to the structural reforms they have been required to implement. Measures have included an increase of the minimum wage and the cancellation of privatisation plans for a power company and ports.

"Greece has very tough negotiations ahead," Mr von Gerich said. "If Syriza is seen to be able to change the terms of Greece's adjustment programmes, the spill-over effects could be sizeable in many other countries, which would add to euro area political risks."

Greek stocks suffered a torrid week in the aftermath of Syriza's stunning victory eight days ago. Banking sector shares were some of the most exposed, as political uncertainty knocked €8bn off their value in three days.

There was some respite for the sector on Thursday, as bank stocks rebounded by 12.9pc after comments from Daniele Nouy, a European Central Bank official.

She attempted to downplay concerns that banks would be unable to survive the current turbulence in financial markets. "They will go through this crisis like they went through the previous ones," she said.

Irish Independent

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