Why Greece is not the risk it once was

Why Greece lost some of its fear factor
Why Greece lost some of its fear factor   

Greece may be one of the first trouble spots for markets in 2015, but it's not likely to be what really rocks them.

A new drama is unfolding between Greece and its lenders. The country's parliament, for a third time, failed to elect a new president, a ceremonial position. But that election represented a vote of confidence, or in this case, lack of it, in the government of Prime Minister Antonis Samaras.

"While Greece was the tip of some systemic pressures in 2010, and 2011 in particular, I think Greece has become a local issue," Amherst Pierpont Securities global strategist Robert Sinche said. "I don't think it's going to be anywhere near as broad-based an issue as it was a couple of years ago."

People wave Greek flags in front of the Greek Parliament.
Andreas Papakonstantinou | Pacific Press | LightRocket | Getty Images
People wave Greek flags in front of the Greek Parliament.

Samaras who had opposed an election, set a date of Jan. 25, three days after the European Central Bank meets. That sets the stage for a potential win by the Syriza party, which opposed the country's bailout and the austerity measures imposed on it.

"I think the working assumption for the last month is that Syriza would win and I think the polls are tightening up a little now, so it's not as clear. ... There was this perception that if the government falls, Syriza wins. Some people extrapolated they would pull out of the euro which they would never do. The euro zone is different than it was in 2011," said Sinche. "Yields are much lower. You have the potential for the ECB to do sovereign purchases."

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Meanwhile, the ECB is expected to discuss quantitative easing at that Jan. 22 meeting, and the Greek vote has ramped up expectations that it could take action even more.

Sameer Samana, senior international strategist at Wells Fargo Advisors, said while Greece is somewhat of an issue for markets, it is not the biggest risk by far. The impact of falling oil prices, Russian aggression against Ukraine and China's economy are all potentially bigger.

"Whether it's Greece or Russia ... if all of these things push the ECB to do more faster, that could be the silver lining in all of this. That could be the short-term turbulence that allows the central bank to step up in a bigger way. That could be more meaningful," he said.

Sinche said he expects the Syriza party could threaten a "Gr-exit" from the euro zone, but it would never seriously consider it. However, the troika of lenders may in fact bend to some of its wishes. The troika consists of the ECB, the European Commission and the IMF, which said Monday that Greece faces no imminent funding issues.

"Discussions with the Greek authorities on the completion of the sixth review of the program that is being supported by an Extended Arrangement will resume once a new government is in place, in consultation with the European Commission and the European Central Bank. Greece faces no immediate financing needs," said an IMF spokesperson.

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Samana notes that opposition leader Alexis Tsipras has softened his tone, and no longer calls for an exit from the euro zone. While his party could gain the most votes in a general election, it looks like it may have to form a coalition to rule.

Greek stocks fell 3.9 percent Monday, and the yield on its 10-year bond rose to 9.638 percent. Yields on Spanish and Italian debt also rose. While Europe's markets were broadly affected by Greece on Monday, the major markets of Germany and France closed higher.

Barclays strategists expect Greece to inject Europe's peripheral markets with volatility while its election and dealings with the troika shake out. The strategists said if a coalition government is required, it will need more time to form and that will bring a higher level of volatility.

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The strategists, in a note, point to a more moderate tone from Tsipras, who they say has called for a write-down of about a third of Greece's debt but prefers not to use default as a tool.

Sinche also expects Syriza to be more moderate than initially expected.

"I think they would realize the economy would collapse, and it would doom them politically for a long time. I think what they want to do is go to the brink again and negotiate better terms," said Sinche.

"When the troika was playing hard ball, they were playing hardball with Greece, with Spain and Italy and everyone else lined up behind them. This is not being brought on by economic conditions. This is being brought on by political issues in Greece. Europe is not very strong but it's out of recession. Most countries look like they're growing."

The question now is whether Greece would qualify for support in an ECB quantitative easing program.

Barclays strategists expect the ECB to announce a QE program on Jan. 22. "It is likely that a troika program would be a necessary condition for the ECB to include GGBs into the QE program," they wrote.