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Political change in Greece: Why it matters to investors

Stephanie Johnson

Beyond austerity: What change in Greece means for the Eurozone (Part 7 of 7)

(Continued from Part 6)

Greek election results: Not a big surprise for the markets

The Syriza party’s win in Greece (GREK) coincided with the euro recovering from its 11-year low against the US dollar. The euro gained 0.7% to equal $1.1285.

Stocks in Europe (VGK) also rose on the hope that a compromise might be reached by the new government over Greece’s bailout terms. The STOXX Europe 600 Index rose by 0.6% to another seven-year high.

Growth in Greece has been held back since 2010 by austerity measures imposed on the country as a part of its bailout arrangements. Similar austerity measures have been imposed on Spain (EWP), Italy (EWI), and Portugal (PGAL).

The incoming Syriza government strongly advocates for an end to these austerity measures, and instead proposes to increase public spending as a way to trigger overall growth in the economy. The bond markets, meanwhile, seem to have reacted to the increased possibility of a Greek default.

Next steps

Greece currently needs to deal with two major deadlines:

  1. February 28, 2015 – The extension of the current Eurozone-backed bailout program expires.

  2. July 20, 2015 – 3.5 billion euros worth of bonds held by the Greek government come up for payment at maturity. And Greece is projected to have run out of money by then.

In anticipation of these looming deadlines, yields on Greece’s ten-year government bonds increased 40 basis points to 8.81%, according to Bloomberg.

Clearly, investors are impatiently waiting for Tsipras to spell out his plans so they can get some idea about the future of the country, its governance, and the future of their investments. Political change in Greece has definitely renewed fears in the investing community about the future of the Eurozone and its currency.

To stay updated on events that could impact your investments in the Eurozone area, visit our European Equity ETFs page.

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