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Greek debate hots up

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The political discussions over Greece are getting heated, but that doesn‘t mean that Greece will immediately run out of funding options, according to Asoka Wöhrmann, chief investment officer of DWS Investments…

Greece is broke and depends on external help — we have known this for more than a year. It is the rhetoric rather than the financial position that has become more aggravated.

Clearly, Europe is growing more impatient of the drawn-out implementation of austerity and consolidation measures. An example: Instead of the promised EUR1.7 billion until the end of Q3, the proceeds from the privatisation of government-owned companies have amounted to zero. Discussions revolve more and more around the default of Greek government bonds. The meeting between the European finance ministers on September 18 and 19 failed to reassure the markets — as did the downgrade of Italian sovereign debt by S&P.

Above all, the ongoing uncertainty lets the banks feel the pressure. Every possible default scenario ultimately involves the necessity to recapitalize an uncertain number of banks — fuelling the mistrust even more (see chart on the right). The prospect of bail-ins will inevitably remain on the agenda of bond investors in the coming weeks. On the topic of recession: We closely monitor the financial conditions. They are critical when it comes to evaluating whether the banking crisis might spill over to the real economy. If a major default can be avoided, Europe as a whole should avoid a recession.

What speaks against a default? In spite of all the verbal attacks, neither Greece nor the creditors can have an interest in a default. As an initial reaction to the heightened pressure, the Greeks have announced the introduction of a property tax. And because of the prospect of additional austerity measures, the troika (ECB, IMF and EU) will probably rubber-stamp the next aid tranche in October. However, in three months, when the next review is due, this topic will catch up with us again.

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