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QE + Syriza = Turmoil

Published Monday, January 26th, 2015

It was events outside Davos that took the headlines last week. After months of hesitation, and some would say a month too late, the ECB launched QE to mixed reviews. The announcement was preceded and followed by currency, interest rate, equity and bond market chaos. If there is one thing that the eurozone has proven it is that it is a source of financial instability rather than the stability it so prides itself on.

While Mario Draghi is doing whatever it takes to save the eurozone, events in Greece threaten to undo his good work. Despite all of the threats of impending disaster should Syriza win enough votes to form a government, their lead increased in the polls and we now know that the polls were right. The Greek electorate has had enough of austerity. Whether this is a protest vote against the entrenched politics and corruption of Greece or against the eurozone with its troika hitmen and obsession with belt tightening is of consequence for the likely fall out over the coming weeks. Whatever the reason it is another source of instability and concern.

The surprise is that Syriza’s victory has come as a shock. It was well signalled. Alex Tsipras declared last night that “the vicious circle of austerity is over” and for the 36% of Greeks who voted for him and many others in Europe his victory heralds a “European Spring”. Let’s hope it does not go the way of the Arab Spring. Will Syriza’s victory pour cold water on the QE euphoria unleashed by the ECB? We are about to find out whether investors turn risk averse in fear of Greek contagion.

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Posted by David Hufton