EU warns against Greek policy shift after election

By Li Qiaoyi Source:Global Times Published: 2015-1-27 0:53:01

Syriza leader Alexis Tsipras greets supporters following victory in the election in Athens on Sunday. The left-wing Syriza party led by Alexis Tsipras won Greece's general election after campaigning on a pledge to reverse years of spending cuts and painful economic reforms. Photo: AFP

The European Union has warned Greece against a shift in economic policy after the country's anti-austerity party's victory in elections Monday.

"German Chancellor Angela Merkel expects the new Greek government to uphold its commitments to international creditors," The Local in Germany reported, citing comments on Monday by Merkel's spokesperson, Steffen Seibert.

British Prime Minister David Cameron also warned on Sunday that the Greek elections would raise economic uncertainty across Europe, saying it meant his country had to stick to his plan for Britain's own economy.

European Central Bank (ECB) board member Benoit Coeure told the German business daily Handelsblatt in an interview published on Monday that the ECB would not take part in any debt cut for Greece.

IMF chief Christine Lagarde also told Le Monde daily in an interview on Monday that Greece must respect the eurozone's rules and cannot demand special treatment for its debt in the wake of the victory of Syriza.

Greek left-wing leader Alexis Tsipras struck a deal with a right-wing party to form a government to reverse years of painful austerity following a crushing election victory by his Syriza party, Reuters reported on Monday.

Greece will work with its EU-IMF creditors for a "viable" debt deal but is determined to leave behind "disastrous austerity," Tsipras said Sunday after his party won the general election.

The five years of austerity imposed under bailout programs is worth 240 billion euros ($268.61 billion) from the European Union (EU) and the International Monetary Fund.

This is the first time a member of the 19-nation eurozone will be led by a party rejecting German-backed austerity, emboldening anti-austerity movements elsewhere within the bloc.

However, uncertainty following the win of the anti-austerity party in Greece's elections is unlikely to have a significant impact on China's economy, experts said on Monday.

China, a close trading partner of Greece and the EU's second-biggest trading partner behind the US, is believed to largely remain impervious to any direct impact of the victory Syriza Party.

But increased uncertainty in the Greek economy may have an impact on China's investments in Greece, Xu Gao, the Beijing-based chief economist at China Everbright Securities, told the Global Times on Monday.

Accords worth an estimated total of 4.7 billion euros in fields such as energy, shipping and infrastructure were signed during Chinese Premier Li Keqiang's visit to Greece in 2014.

There are concerns that the eurozone may risk a potential breakup if Greece's new leadership eventually ends austerity measures, because the global financial market would take a big hit, Tang Jianwei, a senior macroeconomic analyst at Bank of Communications in Shanghai, told the Global Times.

He explained that China is likely to see its foreign exchange reserves, an amount of which are euro-denominated, affected.

By the end of December 2014, China's foreign reserves, the world's largest, stood at $3.84 trillion, according to the latest data from China's central bank.

A breakdown of the reserves by currency has yet to be revealed by the central bank, but it is estimated that a quarter are in euros. 

However, the odds are quite low that Greece would default on the bailout which risks splitting Greece from the eurozone, Tang told the Global Times on Monday.

"The election results show many Greeks' reluctance to implement budget belt-tightening as they have been conditioned to high welfare benefits," he remarked.

But instead of sticking to election promises, the new government may just use them as a bargaining chip to win the elections, the economist went on to say.

Similarly, China Everbright Securities' Xu doesn't believe that Greece would opt for the alternative.

"Greece's new government is unlikely to let the nation withdraw from the eurozone, which would leave the Greek economy heavily bruised," he said.

Nevertheless, China's substantial euro reserves are cause for concern. The Chinese currency continues to appreciate against the euro, but analysts noted it is mostly due to the weakness of the euro that was increased by the ECB's announcement last week of a massive bond-buying spree.

The euro will continue to come under downward pressure in the wake of the bond-buying program, and therefore the US dollar will go upward, leading to a rise in the value of the yuan against the euro, according to Xu.

But the yuan's exchange rate is expected to remain stable against the US dollar, though the yuan's two-way fluctuations will be increased substantially, Tang said.

On Monday, the yuan's central parity rate against the dollar was set at 6.138, compared to 6.134 on the previous trading day, central bank showed.

The yuan's rate against the euro was fixed at 6.874, below 7 for the first time in about 14 years.

Agencies contributed to the story

Posted in: Europe

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