Goldman Sachs: ‘The Election Outcome Creates Uncertainty in Eurozone’

“The election outcome in Greece creates significant uncertainty ahead for the country primarily and the broader spectrum of euro-area assets,” Goldman Sachs strategists said in a note to clients. The big American bank seems to regard yesterday’s elections as an indication that “Greece (has gone) away from the euro area core.”

One of the big fears is that the new Greek leadership will block cuts necessary for desperately needed bailout funds, which could ultimately send the Εurozone into chaos.

A day before the elections, Jim O’Neill, Chairman of Goldman Sachs Asset Management, published his Viewpoints note addressing the matter.

“If the Greek results reintroduce additional risks and fears of financial contagion across weaker Eurozone countries, then this might also presumably weaken the Euro because of the perception that it may force the ECB to be more accommodative,” he wrote. “One might jokingly think, on the contrary, such heightened contagion might influence the Federal Reserve Board more than the ECB. This, however, may not be a joke,” he added in his note. “It would be ironic, if not improbable, that a major escalation of Euro-area financial contagion influenced the Fed more than the ECB.”

Meanwhile officials from the European Union and the International Monetary Fund immediately rushed to warn that Greece must adhere strictly to its austerity program and said there is little room for any new negotiations on the bailout terms.

The Greek elections combined with the French “surprise” of Hollande’s victory seem to have affected the monetary course of the Euro. “Euro Falls After French, Greek Elections” says World FOREX, while the Australian dollar feels the turbulences from Europe’s upheaval.