Analyst view: Greek prime minister to form new government

NEW YORK (Reuters) - Greece's prime minister said on Wednesday he would form a new government and seek a vote of confidence from his parliamentary group after violent protests against austerity measures.

COMMENTS:

PAUL ATKINSON, HEAD OF NORTH AMERICAN EQUITIES, ABERDEEN ASSET MANAGEMENT INC, PHILADELPHIA

"Formation of a new government in Greece is unlikely to change current investor thinking because investors remain susceptible that any government regardless of composition can deliver the economic measures on the scale required to avoid what would now appear to be inevitable default.

"The impact of European sovereign issues on (U.S.) domestic equity markets is indirect and felt mainly through the negative impact it has on investor sentiment.

"Relatively small amounts of U.S. company revenues and profitability are sourced from Europe and investor expectations of this increasing in the future are low.

"In contrast, U.S. economic growth projections and the country's own federal debt crisis are much more important considerations for domestic investors focused on macro risks."

MICHAEL WOOLFOLK, SENIOR CURRENCY STRATEGIST, BNY MELLON, NEW YORK:

"It was on a condition we understand that the opposition party agreed to the cuts required by the international bailout. It's going to be very difficult to see how a new government could change the public perception of the need to adopt austerity measures. That's what we are struggling with here, which is the inevitability of a technical default -- just whether or not this will have any type of contagion effect in Europe or even globally for that matter."

ALBERTO BERNAL, HEAD OF EMERGING MARKET FIXED-INCOME RESEARCH, BULLTICK CAPITAL MARKETS, MIAMI:

"Greece has no option other than accept the terms of an IMF bailout because regardless of who is in power; if it doesn't accept the terms, Greece will not get any funding whatsoever, will not have access to the liquidity line of the European Central Bank.

"If they don't agree to adjust irrespective of how painful it is, the only option that they would have is to reintroduce the drachma which means that they will have to leave the euro.

"If they reintroduce the drachma, every single bank will be completely broke because the deposits of people are in euros and if they print the drachma, the bank assets will be worth 30 percent of the liability.

"If they choose the drachma, they will move poverty to 30 to 50 percent of the population from current levels and to a level of income per capita comparable to an eastern European country."

DAVID JOY, CHIEF MARKET STRATEGIST, AMERIPRISE FINANCIAL:

"This is the most serious of the immediate concerns facing markets because of the negative implications for the European banking system. The European economy can ill afford another liquidity crisis, nor is it fully prepared for an impairment of capital. The slowdown in the U.S. is certainly a concern, but it may prove to be temporary, and if not, it is not of the acute nature as the debt crisis in Greece. The sharp fall in the euro and the reaction of European debt and equity markets suggest that the Greek situation is entering its crisis stage, when we are most likely to get a resolution. My expectation is that Germany blinks first, and that any solution does not include a credit event as defined by either the rating agencies or the ECB."

KATHY LIEN, DIRECTOR OF CURRENCY RESEARCH, GFT, NEW YORK:

"The situation in Greece deteriorated rapidly, giving European leaders very little time to react. This was supposed to be a week focused on intensive discussions about a rescue package for Greece, but the possibility of a government change could stifle progress because many of the austerity measures were a condition for aid.

"The struggle for Papandreou has been to get his government and his people behind austerity measures that are necessary to avoid a default. Unfortunately those same people cannot understand the pain that the country would endure in the years ahead because it would be impossible for Greece to borrow and would draw out the already painful recession. Granted, in their support, many people in Greece have already suffered deep salary and pension cuts which explains why they are so adamantly opposed to further cuts. Yet this does not even consider the global ramifications of a Greek default -- something the world needs to desperately avoid. Greece is running out of time and reshuffling the cabinet will only have limited effect because budget cuts are needed to convince countries like Germany to offer aid, regardless of how unpopular they may be.

"Papandreou's announcement is only a short-term patch that will hopefully pacify protesters but it doesn't address the real issues. In fact, a government change could even delay the undertakings that need to be made in order for the EU and IMF to extend another lifeline to Greece. The pressure is on for European officials to reach an agreement and the reaction in the EUR/USD shows just how much impact Greece's problems can have on the financial markets. As a result, expect European officials to work extra hard over the next week to avoid a default. The sad reality is that a Greek default would be a bigger problem for the European banking system."