European markets fall ~2.50%
The Global X FTSE Greece 20 ETF (GREK) fell 2.72%, the SPDR EURO STOXX 50 ETF (FEZ) fell 2.55%, and the Vanguard FTSE Europe ETF (VGK) ended 2.23% lower at the close of trade on August 20. The big news weighing down all of these European equity-tracking ETFs came from Greece.
Greece makes the headlines
Greece made the national headlines when Prime Minister Alexis Tsipras resigned from office on Thursday, August 20. The resignation will likely trigger snap elections in Greece. Greek voters would be required to vote on a referendum again. For a country that’s trying to emerge out of economic paralysis, this political move definitely isn’t welcome. The National Bank of Greece (NBG) fell 8.05%, while other European stocks like Banco Santander (SAN), and Barclays (BCS) also fell 1.70% and 1.61%, respectively, on the news.
Change is the new constant in Greece
The chances of Alexis Tsipras being re-elected to the position in September are strong. Currently, his Syriza party doesn’t have a strong contender. His popularity in Greece was evident in the January elections. On January 25, Tsipras led his Syriza party to power in Greece. The anti-austerity Syriza party received 36.30% of the votes compared to the ruling New Democracy party. It won 27.80% of the votes. With a coalition, the Syriza party was able to secure 162 seats, or ~54%, in the 300-seat Hellenic Parliament. For more on the January election results and its implications, read Subdued market reaction to Syriza party win in Greece.
What led to the resignation?
In July, the Greek government agreed to a bailout package by the Eurozone. However, the $96 billion—86 billion euros—from the ESM (European Stability Mechanism) came with a set of new and stricter austerity terms. We covered the agreement and its key terms in Eurozone Agreement: Greece to Receive up to $96 Billion.
Tsipras had promised his voters that he would free Greece from austerity measures. Accepting the stricter terms displeased many in his anti-austerity Syriza party. A re-election would help Tsipras determine where the members in his party stand. He would know:
- who agrees that the acceptance of the bailout terms is the only chance of saving Greece from a default
- who disagrees with his decision to accept austerity, as his election mandate has always been to free Greece from austerity
To learn more about the developments in Greece and how they will impact your investments, read How Greece’s political crisis may impact your investments in the Eurozone and Beyond austerity: What change in Greece means for the Eurozone.
For more on Greece, please Market Realist’s " href="https:\/\/marketrealist\.com\/t/grek/" target="_blank">Global X Funds (GREK) page.
Investors in the Eurozone may find our analysis on European Equity ETFs useful. Stay updated on our latest analysis of the United States Europe (HEDJ) and the rest of the world (ACWI) by visiting Market Realist’s Macro ETF Analysis page.