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Greek elections: support for euro, uncertainty remains

“After Sunday’s election, Greece and the world are awaiting the formation of a new government in Athens. The most likely outcome is a majority government consisting of the two parties that have signed the bail-out plan,” Robert Bergqvist, SEB’s chief economist, says.

Robert Bergqvist says that uncertainty around the euro will remain – many complex pieces of the puzzle must fall into place before the euro currency can move in a direction where it can stabilise.

The situation in Greece is by no means solved despite the pro-bailout parties winning a majority in parliament. Economic indicators and government finances are moving in the wrong direction while unemployment is rising.

Greece’s economic, financial, social and political systems will remain under pressure in coming years. Bergqvist says Greece will likely leave the euro as part of an agreement with its creditors in Europe and elsewhere.

Where is the euro project heading?

The big question is what will happen to the euro. Creating a stable environment for the currency requires both support from a strong world economy and that European leaders communicate a clear vision for the future. People in the countries that use the euro must also accept centralisation of economic and political power.

How will this all affect the Nordic region and Sweden in particular? If the uncertainty around the future of euro is reduced quickly there will be very little effect on growth prospects and the financial situation. Should uncertainty remain, demand for goods produced by export-oriented companies could fall and thereby prospects for the labour market.

Equity market valuation attractive

Bergqvist says an immediate effect of the elections results should be that the Swedish krona strengthens compared to the euro. Companies traded on the stock exchanges generally have strong balance sheets, making today’s valuations attractive. However, the situation is so uncertain that any equity market investor should work with wider margins than previously and take a long-term view. Corporate bonds remain an attractive investment category in uncertain times.