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New Greek government right or left will undo austerity

Tuesday, June 11, 2019

Significance

The Syriza government, trailing by a margin of around 10 percentage points (pp), has abandoned its commitment to creditors to reduce pensions and taxes in exchange for debt relief and budgetary transfers. It is gambling that reverting to its anti-austerity stance of 2015 will restore its electoral fortunes.

Impacts

  • The next government will face a major task in restoring fiscal credibility.
  • Tax revenues, which always decline in an election year, will diminish even further.
  • Bond yields, which have been falling, will turn upwards again.
  • Foreign capital, which might have been considering investing in Greece, will recoil from the confusion.
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