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Greek Elections: Troika Loses Either Way

Wednesday, 13 Jun 2012 | 4:06 PM ET
CNBC.com

The Greek elections: no matter who wins, the Troika* (EU/IMF/ECB) loses. And Greece may be a loser too.

I have been asked repeatedly about what will happen with the Greek elections this weekend.

The trading community seems paralyzed, unsure what or how to trade. They see headlines of more bank withdrawals, people stockpiling pasta in Athens.

Trading volumes have been light, even though we are in the middle of a quarterly quadruple witching expiration that would normally bring increased volume. That is changing today: volume is heavier.

Here are some thoughts:

1) the Troika (EU/IFM/ECB) is working on another deal for Greece.

2) The Troika will offer concessions, no matter who wins. The fiscal targets will be relaxed. Structural reforms will be relaxed. Fewer people will be fired. No matter who wins, they'll be able to show they got something.

3) There will be more money coming from the eurozone members. How much? Who knows? 30 billion euros? 50 billion? But it will likely come from the EFSF.

4) The new government — whoever it is — will likely agree to the deal. Would you sign on to a new deal, knowing that everything is now subject to an endless round of renegotiation? I think I would.

5) What I doubt you will see: significant debt relief. Which is exactly what we need. Oh, there might be a few in the IMF who want to see that, just to keep the debt relief plan looking good. But I doubt you'll hear talk that the ECB will be taking a haircut on Greek debt. Remember: most of the Greek debt is now public, not private.

So what will happen? If the conservatives (New Democracy) or the socialists (Pasok) win with some form of coalition formed, the markets will likely rally. I know: this is the same outcome as last time. But this time there will be more pressure to form a coalition.

If the far left party (Syriza) wins, they have already said they will renounce the bailout.

But wait a minute. "Renounce" is likely just election-speak for "renegotiate." Syriza will need to form a coalition. They too will want to show they can govern, and that likely means going along with the program and trying to renegotiate, not just walk away. The Troika knows that.

And they have to negotiate. They're bankrupt. If they don't negotiate, they won't get the money they need to run the country. Second, the banks have no money, and they only get it from the ECB.

They'll likely negotiate and not risk complete collapse and an exit from the euro.

Of course, almost anything can go wrong, especially if the victorious party overplays its hand and demands massive debt relief.

One other point: Greece needs to get very serious about reforms. There have been no major reforms implemented. Even with no reforms, with far fewer layoffs than anticipated, the economy is in a tailspin.

But that’s not likely to happen: the Troika is going to LOOSEN the reform requirements, not STRENGTHEN them.

And there is the bigger question: can Greece elect ANY party with a vested interest in reforms? For that matter, can Italy?

* The Troika:

The EU

The IMF

The ECB

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  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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