NEWS,16.06.2012

Greece election 'euro versus drachma'

 

Conservative leader Antonis Samaras has told Greeks they face a stark choice between staying in the euro or a "nightmare" return to the drachma in an election that threatens to send shockwaves through the single currency.Samaras's New Democracy party is neck and neck with the radical leftist SYRIZA going into Sunday's pivotal vote, with SYRIZA leader Alexis Tsipras threatening to tear up the punishing terms of the 130 billion euro bailout that is keeping Greece from bankruptcy.Addressing supporters at his final campaign rally, Samaras pledged again to renegotiate the bailout's punishing terms in order to promote growth and jobs, but said that to go head to head with the country's European partners would mean the end of Greece's euro membership."We are going into an election to decide the future of Greece and of our children," Samaras, 61, told the crowd of several thousand waving Greek and EU flags in the capital's central Syntagma square."The first choice the Greek people must make is: euro versus drachma.""There are some outside Greece who want the country to be the black sheep and push it out of the euro. We will not please them," Samaras said, in a speech laced with the anti-immigrant rhetoric on the rise in Greece as the economy flounders.Neither party is expected to win outright, and negotiations will follow to create a pro- or anti-bailout coalition government.Nightmare Euro zone officials have hinted they might give a new Greek government some leeway on how it reaches debt targets set by the EU/IMF bailout package, but there would be no change to the targets themselves.Greece's lenders say they will turn off the taps if the country rejects the bailout. Tsipras says Europe is bluffing - it cannot afford to cut Greece loose and risk the contagion for the much larger economies of Spain and Italy, he argues.Greeks say overwhelmingly that they do not want to leave the euro, but neither do they want the pension, job and wage cuts arising from the bailout which have helped condemn the country to five years of record-breaking recession."I'm optimistic because I hope people will think as Greeks when they vote and not give in to anger," 61-year-old pensioner Anthi Zoitou said during Friday's rally."I voted for another party ... in the previous election," said 32-year-old economist Antonis Kargas, "but will vote for New Democracy now. The dilemma facing Greece is whether it holds onto its European prospects."Sunday's vote is a re-run of a May 6 election that produced stalemate.Tsipras has rejected forming a government of national unity, but Samaras said the country could not afford a third election."We cannot withstand it," he said. "We are in favour of renegotiating (the bailout) for jobs and to remain in the euro; this is what the Greek people want.""Should young people have opportunities to work or will we allow today's incredible unemployment to become a nightmare?"

Investors seek shelter before Greek vote

Traders and investors are taking all bets off the table before this weekend’s Greek elections, which may decide whether Athens stays in the eurozone. Greece votes on Sunday in a second attempt to choose a government that will decide whether to back the terms of its international bailout. G20 officials say central banks are ready to act to calm markets if needed. But investors are not taking any chances. “People are just totally hands off, they don’t want to know. Why would anyone want to deal this side of the weekend?” said Steve Larkins, head of sales trading at Seymour Pierce. “With the Greek elections coming up, Monday morning could be a disaster for someone taking a big bet over the weekend.” Hedge funds, typically among the most aggressive market players, are also wary, taking on only 10%-30% of their maximum permitted bets on risky assets, said Gerry Fowler, global head of equity and derivative strategy at BNP Paribas. “There are so many risks that just can’t be modelled... it really creates a market where no one can do anything with conviction and it’s a matter of wait and see,” he said. Global fund managers’ cash balances have jumped to 5.3% this month, their third-highest level on record, according to a Bank of America Merrill Lynch survey. Equities investors have been reluctant to roll over, or replace, options contracts which expire on Friday, as they opt for neutral positions. Some 1.4 million futures contracts on Euro STOXX 50 index of eurozone blue chips are yet to be rolled over, according to Eurex data. Shake out The shaking out of positions has led to high volumes. Monday was the Euro STOXX 50 index’s most active day of 2012 and this has been one of the year’s most active weeks. In currency markets, the euro has rallied versus the dollar  - arguably a counter-intuitive move given the eurozone crisis. Traders say the rebound has been driven by investors’ desire to unwind the large number of net short bets built up in the single currency. “As far as the euro/dollar is concerned, I am going square into the Greek elections. I have a feeling, either way, things will drag on for a while and that gives us enough reaction time,” Stuart Frost, head of Absolute Returns and Currency at fund manager RWC Partners. Position squaring was a factors behind a selloff this week in safe haven German government debt, which had been a favourite place for investors to sit out the crisis, even if that meant paying Berlin for the privilege. “Positioning is pretty square,” said one London-based bond trader. “People might still be a little bit long in longer-dated bonds but that’s probably because they haven’t been able to get out... A lot of bets have come off the table.” Another trader said the moves in the Bund futures signalled “that a lot of desks are either taking less risks themselves or have been told (to) stop taking risk until after the election”. Most sellers of insurance against a default on Greek government debt, known as credit default swaps (CDS), declined to quote before the weekend, dealers said. “I’d be surprised if anyone would want to dive in before the election with (Greek) bonds trading at 10 cents on the euro. "If we get some stability with the election then we’d expect trading to pick up again,” said one head of European credit trading at a major US bank. Ready for rollercoaster Investor nervousness is evident in the big gap between actual volatility on the Euro STOXX 50, which has fallen to two-month lows below 20, and the implied volatility as measured by the VSTOXX which has stayed stubbornly high around 32. “The spread between realised and implied volatility has gone up in a way that would explain the market is pricing in some Greek weekend risk,” said Abhinandan Deb, European head of equity derivatives research at Bank of America Merrill Lynch. Implied volatility reflects options pricing and is a measure of expected price swings. In the currency market, one-week implied volatilities have jumped to around 15.40%, the highest in six months and almost double the level of realised volatility. “Expect a rollercoaster in the markets,” said Stefan Angele, head of investment management, Swiss & Global Asset Management, although he advised keeping some positions, such as an "underweight" stance on the financial sector. With so much nervousness and so much money off the table, the markets could be poised for wild swings come Monday morning. “There is a gigantic number of shorts in euro/dollar so any headline that comes out over the weekend that indicates that Europe is safe will create the scope for a massive squeeze up on Monday,” said Jeremy Batstone-Carr, director of private client research investment strategy at Charles Stanley.