Eurozone’s economy had been passing through tough times. A series of economic indicators have indicated weaknesses across the entire region. This is why it is being widely expected that the ECB will unveil a program of monetary stimulus when it meets on Thursday. However, the efficacy of such measures is already being questioned. Meanwhile, the political situation in Greece has put forward another challenge for the region’s economy.
Political Crisis
The political situation in Greece worsened in December last year after Prime Minister Antonis Samaras announced presidential elections. This move came in after the country was given an additional two months to fulfill its bailout obligations by the ECB. Moreover, early signs of elections had investors believing that the radical left Syriza party might come to power.
At the end of the month, the country’s parliament rejected Prime Minister Antonis Samaras’s preferred presidential candidate in a third and final vote. Antonis Samaras failed to secure 180 votes needed to back his candidate. This rejection meant that the parliament stood dissolved. Subsequently, Antonis Samaras called for a snap election, which is scheduled to be held next week.
Syriza and the Eurozone
Meanwhile, Syriza seems to be at the height of its popularity given that it dominated European parliament elections last year. The anti-austerity party is also keen to hold fresh negotiations regarding the country’s bailout package. In fact, several analysts hold the view that the outcome of the election could lead to a fresh crisis for the Eurozone.
This is because Syriza’s leader Alexis Tsipras has promised to “cancel austerity” since it is leading to severe economic hardships for Greece. Additionally, he has pledged that the country will exit its ongoing bailout program without making further budget cuts. This creates major concerns for the IMF and ECB which had backed Greece’s €240bn bailout package in exchange for substantial budgetary cuts and reforms.
Exiting the Eurozone
Earlier this month, Prime Minister Antonis Samaras said a victory for Greece's anti-austerity, left-wing Syriza party may lead to the country’s exit from the European Union. This would be the result of a continual standoff over debt restructuring.
Meanwhile IMF’s chief Christine Lagarde has cautioned European countries who attempt to hold new negotiations over debt about “consequences.” Lagarde said: “Defaulting, restructuring, changing the terms has consequences on the signature and the confidence in the signature.”
Lagarde responded strongly when asked about the possible impact of Greece exiting the Eurozone. “First of all it is not allowed under the rules of the euro area, and secondly I think it would be devastating for Greece,” she said. However, there is no denying that an exit would have a contagion like impact on the other EU countries. This is because it would set a precedent for other countries with large debt like Italy and France.
Our Choices
Despite the concerns arising out of a win for Greece’s radical left, elections are still a few years away for other countries. Additionally, fresh stimulus measures may provide some impetus to Eurozone’s economy.
However, there is no denying that investor sentiment will be affected in the short term in case Syriza comes to power in Greece. This is why it may be safer to bet on companies based in Europe, but with a large global presence. Below we present three such stocks, each of which also has a good Zacks Rank.
Alcatel-Lucent (ALU) is a leading global provider of IP and Cloud networking, ultra broadband fixed and mobile access. The company operates its business in three primary segments: Core Networking, Access and Others.
Alcatel-Lucent holds a Zacks Rank #2 (Buy) and has expected earnings growth of 86.2%. The forward price-to-earnings ratio (P/E) for the current financial year (F1) is 17.07.
Intercontinental Hotels Group plc (IHG) is the holdings company for nine hotel brands with operations across the world. Intercontinental Hotels operates through four geographical segments. These are Europe, Asia, Greater China, Americas and Middle East and Africa. The company owns, manages and has franchises hotels across these regions.
Apart from a Zacks Rank #2 (Buy), the company has expected earnings growth of 15.2%. It has a P/E (F1) of 22.04x.
Shire plc (SHPG) is a specialty biopharmaceutical company catering to diverse medical needs through research and development, manufacture, sale and distribution of pharmaceutical products. Shire repositioned its business in 2013, undertaking a realignment program with strategic focus on rare diseases and greater operational discipline.
Shire holds a Zacks Rank #2 (Buy) and has expected earnings growth of 9.2%. It has a P/E (F1) of 18.67x.
Certain politicians in the Eurozone have indicated that Greece may be given more time to make its debt payment. At the same time, it is difficult to predict the final outcome of the developing scenario. Given these factors, adding these stocks to your portfolio would be a prudent decision.
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