Analyst Insight: Greek Unrest Hinders CEE Growth

From Matt Lasov, Head of EMEA Research:

“Unfortunately, some bad news out of Greece to start the new year. Things are deteriorating and it’s more important than ever to monitor events there.

In Athens, shots were fired into the offices of the ruling party including the Prime Minister’s office. Nobody was hurt but this represents an escalation in social tension. The trend is worrying as bombs were also detonated at other government offices, the homes of journalists and banks during the last week.

The economy is still shrinking under austerity and voters will ask for change one way or another. Banks are still bust and more people are losing their jobs.

Making things worse socially, the Greek government is clawing back some austerity measures for the rich and well-connected, property taxes for example, and arresting reporters who published names of those who evade taxes. The country is ripe for real social unrest. Syriza, the anti-Europe opposition, was ahead in opinion polls until the government secured the most recent round of bailout funding. When that round begins to dry up, Syriza’s case will be even stronger. Ultimately, default is a political decision.

Meanwhile, in Germany, the economy contracted more than expected, 0.5%, in the fourth quarter. With a contracting economy and an upcoming election, it’s hard to imagine that meaningful external support is on the way.

If the eurozone moves back to the brink of breakup, emerging markets that share trade and financial links, particularly in Central and Eastern Europe, will be impacted.

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