More on Greece

This might be slightly older news - before the failure of mainstream parties to form a government


Greece ‘worst case’ outcome sparks new turmoil

Investors woke up Monday to a “worst case” scenario in Greece after voters punished mainstream, pro-bailout parties in parliamentary elections, potentially creating a political vacuum that could fan doubts over the country’s ability to meet the terms of its latest bailout and remain in the euro, strategists said.

MarketWatch

7 May, 2012

With 99% of the vote counted, the center-right party New Democracy was on track to hold 108 seats in the 300-seat lower house of parliament, while the center-left Socialists, known as Pasok, were seen at 41, according to Greek newspaper Kathimerini. Pasok came in third behind the left-wing and anti-bailout Syriza party, which has won 52 seats, the report said.

That leaves a combination of New Democracy and Pasok — the country’s long-dominant parties and architects of the recent bailout — two seats short of a 151-seat majority.

“This is the crisis we have all feared,” said Carl Weinberg, chief economist at High Frequency Economics in Valhalla, N.Y., in a note to clients.

Voters deliver a stinging rejection of Greece’s two incumbent parties.

Greece’s president on Monday gave New Democracy leader Antonis Samaras three days to put together a coalition, the Associated Press reported.

If he fails, the mandate will go to the head of the second-place Syriza party and then to Pasok. Each would have three days to complete government-formation talks.

Observers said the inconclusive result makes it unlikely a solid coalition can be formed — potentially setting the stage for another election as early as June.

Meanwhile, leaders of smaller parties, which campaigned hard against the terms of the latest bailout, were triumphant. “The people of Europe can no longer be reconciled with the bailouts of barbarism,” Syriza leader Alexis Tsipras told Greece’s state-run NET TV late Sunday, according to Bloomberg.

In the markets, the Athens General Index GR:GD -6.67% remained down nearly 7%, while Greek government bonds sold off sharply, sending the 10-year yield soaring more than 2.5 percentage points to 23.25%, according to electronic trading platform Tradeweb.

Other European equity markets began the day under pressure but then turned mostly higher, while U.S. stock-index futures pointed to a slightly lower start for Wall Street. Read Europe Markets.

Meanwhile, the yield on the 10-year German bund DE:10YR_GER 0.00% fell as low as 1.556%, according to Tradeweb, within spitting distance of the record low of 1.549% set last week on safe-haven demand. The yield was seen at 1.58% in recent action, up by around 1 basis point.

The euro EURUSD -0.14% slumped to its lowest level versus the dollar since February before paring losses to change hands at $1.3035 in recent action, down from $1.3095 in North American trade late Friday.

Prospects for a ‘messy euro-zone exit’

While New Democracy and Pasok are calling for a grand coalition, “the willingness of other parties to go down that route looks low, so Greece could be back at the polls next month,” said Elsa Lignos, senior currency strategist at RBC Capital Markets in London. 

“Overall the breakdown in the political process may bring threats of a messy euro-zone exit back into market focus.”

The formation of a “rejectionist” government in Athens would force the International Monetary Fund and the European Union to suspend maintenance payments for Greece, High Frequency Economics’ Weinberg said.