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JP Morgan: The Scenarios for The Greek Elections and The Day After May 14

JP Morgan refers to the Greek elections in a new note, stressing that on May 21 it is very likely that there will be no result, given the current electoral law.

He emphasizes, however, that from the second electoral contest expected at the beginning of July, a ND government will probably emerge, either alone or in coalition with KINAL .

The investment bank underlines that recent opinion polls show that the current centre-right ND (35%) is ahead of the leftist and populist – as it characterizes – SYRIZA (29%), with a stable difference of 6 to 6.5 percentage points. The center-left KINAL gathers around 10.5% and the far-left KKE 6.5%. Two more populist parties, the anti-European and left-wing Mera25 and the right-wing Hellenic Solution, which gather around 4.5% each, could also enter parliament, he adds.

Cooperation scenarios

He even emphasizes that according to the electoral law, no party or coalition of parties seems to be able to secure a majority of seats. According to JP Morgan, in theory, a far-left coalition led by SYRIZA, with KINAL as a junior partner and one or more additional left-wing parties, could win a minority of seats.

However, he hastens to point out that this “danger” is currently being removed: on the one hand, KINAL rejects any prospect of an agreement with SYRIZA, and on the other hand, any such attempt poses risks for the latter and its leadership as the departure of executives is possible.

The KKE consistently refuses to participate in any coalition government, while MeRA25’s intense Euroscepticism will prevent it from being a good government partner.

“The above shows that we may be led to second elections on July 2nd. According to a law passed by the current ND government in 2020, this second election will be held based on a revised electoral law that provides a majority premium to the party with the most votes. A vote percentage of 38% will be enough to reach the limit of 151 MPs”, the authors of the report emphasize.

Second ballot

Recent polls show that the ND is just a few percentage points short of the required majority in this second election, so two scenarios are likely, according to JP Morgan: a self-sustaining but small ND government, or a government in which ND will be the main partner in a coalition with PASOK-KINAL.

The US bank also says that given the high polarization in the electorate and the various events that have damaged the ND’s reputation, it is too early to form firm views on a runoff.

In fact, even the validity of the most recent polls is highly contested, he points out.

The financial prospects

“In essence, we believe that after the May 21 elections, the necessity of the second elections will be established in time. If this happens, the ND will retain a dominant role in the new government and will remain largely consistent with the current government. Although the ND may need to negotiate a coalition with KINAL, such an alliance is unlikely to significantly affect political goals, especially those related to ambitious reforms and major public spending programs facilitated by the EU Recovery Fund, which represents a significant share of the country’s GDP for the next five years. While there could be some adjustments to capital gains taxation, we do not expect major changes to the overall policy agenda,” the US bank said.

“Consequently, our forecast for a resilient and sustainable growth of the Greek economy remains unchanged. After a significant decline of 8.1% year-on-year in 2020 due to the pandemic, the Greek economy has shown resilience by recovering by 8.1% in 2021 and is projected to advance by an additional 6.1% in 2022. For the year 2023, we forecast continued robust expansion of around 2.5% on an annual basis. At the same time, the substantial expansion of the economy, reinforced by the rise in inflation, causes a significant reduction in the excessive amount of public debt, decreasing by 23.3 percentage points by the year 2022, to reach 171.3%”, he concludes.

Source: TA NEA