Every Greek Vote Counts

Some economists take the view that Sunday's election could push Greece back to the nadir it touched in November last year, when there was widespread talk of an exit from the euro zone. The contagion effect would drive Spanish and Italian bond yields straight back into the danger zone, economists say.

"Political paralysis in Greece following the elections could lead to a default and even threaten a euro exit, in our view," Bank of America strategist Athanasios Vamvakidis wrote in a research paper published on Tuesday.

"We believe that the troika may have little choice but to stop funding Greece if there is no government in place," he said, referring to the monitoring mission made up of the European Central Bank, the IMF and the European Commission.

PANDORA'S BOX

While others are less apocalyptic, there is a widespread expectation among private-sector analysts that some renegotiation of the second program will be necessary if a balance is to be struck between keeping Greece politically stable and keeping it on track towards debt sustainability.

With French Socialist Francois Hollande expected to lead a charge for the euro zone to put greater emphasis on stimulating growth and to focus less intently on deficit reduction, Greece may be an early candidate for a loosening of its targets.

"A new government is likely to argue for more backloading of the fiscal adjustment to limit the near term economic contraction, and on this issue it is likely to be pushing against an open door," David Mackie, a senior economist at JP Morgan in London, wrote in a note to clients.

That might provide some breathing space for Athens, but it would have implications for Greece's financing and would likely mean that it couldn't return to financial markets in 2015 since a primary budget surplus would remain some way off.

"Thus, a third program seems likely in any event," Mackie said. "The size of that program would have to be larger to the extent that less progress is made on the fiscal side."

http://articles.chicagotribune.com/2012-05-03/news/sns-rt-us-eu-greece-electionbre8420h5-20120503_1_greek-election-euro-zone-greece