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Flash note: Possible upside surprise on Greek coalition

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The socialist leader of Greece's Pasok party and former finance minister Evangelos Venizelos may be close to forming a coalition government .

[caption align="alignright" caption="The Greek Parliament, chamber of Senate"] Image courtesy ΠΑΣΟΚ: http://www.flickr.com/photos/pasokphotos/ [/caption]

The mandate to form a government was passed to Venizelos after the leaders of the New Democracy and Syriza parties failed to gain enough support.

Venizelos said that talks with Fotis Kouvelis, leader of the Democratic Left, were good and had outlined a proposal for a unity government that would keep the country ( GREK , quote ) in the E.U. while possibly negotiating a gradual end to austerity.

The markets have been pricing in the increased possibility of a Syriza government hostile to European debt agreements or new elections if the leaders from the top three parties could not come to terms. Syriza party leader Alexis Tsipras had demanded a letter from the Pasok and New Democracy parties renouncing debt agreements on Wednesday.

Positive talks with the Democratic Left are important because the Pasok and New Democracy parties are only short two seats in parliament to reach the number necessary for a majority. The support of a third party would mean a government could be formed, decreasing the considerable amount of uncertainty that has wracked the markets this week.

While former rivals, the Pasok and New Democracy parties have been the principal architects of agreements with the European Union and are seen as the most friendly to a continuation of E.U. membership.

The Democratic Left party has not been as agreeable to E.U. austerity measures but may help form a government for concessions to some growth measures.

Venizelos has four days to announce a coalition but may be able to form one earlier with the support of the New Democracy and the Democratic Left. Headlines are possible Friday but more likely Monday or over the weekend.

Higher beta stocks, and those tied to commodity prices, would most likely see the largest bump on headlines.

The dollar could weaken as decreased uncertainty brings the risk-trade back and investors leave the currency's safety. Crude prices, up almost half a percent on Thursday, are still down more than 5% for the week. Long positions in the United States Oil ( USO , quote ) or short positions in the PowerShares DB US Dollar Index ( UUP , quote ) could provide an upside windfall.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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