Snap elections in Greece and falling inflation expectations leaving EUR unimpressed

Greek prime minister Alexis Tsipras has called snap elections (probably for 20 September). In doing so, he is making the most of a good opportunity. The third bailout package has just been adopted by all parliaments, and the first tranche has already been paid out. As a result, Greece was able to repay its debt to the ECB in time. Now, Tsipras is trying to bolster his position and get rid of dissidents within his own party before the austerity measures are starting to bite. Recent surveys suggest that Syriza has a good chance of winning the elections again, so Tsipras will have a mandate to implement the reforms demanded by the creditors. For now, however, reforms will be shelved - after all, Tsipras has an election to win. Whether the government will be able to implement all necessary measures until the next tranche is due, is another matter - this issue will be tackled after the elections. And thus, it is not an issue - and, above all, not a burden - for the EUR either right now. 

Instead, declining oil prices and the drop in inflation expectations should be weighing on the euro. ECB Council member Ewald Nowotny was one of the first to complain about this development yesterday. Core inflation has recently jumped more strongly than expected. Nevertheless, it does not bode well for the inflation target if inflation expectations decline further. Moreover, the ECB has another issue to worry about in this context: the EUR. EUR-USD has moved away considerably from this year's lows. 

"This development is not supportive of the ECB's efforts to generate inflation. However, as long as it does not make its worries public, the markets will continue to focus on US monetary policy. At the moment, that is favourable for the EUR", states Commerzbank.