ATHENS, Greece – Greek shares suffered their worst hammering in nearly three decades Tuesday, on concerns the country is heading for a political crisis that could jeopardize its vital bailout program.
The Athens benchmark index fell 12.8 per cent, the biggest one-day drop since 1987, after the conservative-led government brought forward the date of a presidential vote that, if inconclusive, will lead to general elections.
Investors fear the main left-wing opposition party, Syriza, which is leading in the polls, might win the general election. Syriza has said it will demand a substantial cut to what Greece owes in bailout loans if it is elected.
Economist Megan Greene said the country’s bailout creditors — the European Union and the International Monetary Fund — are not going to stand for that, and Syriza leader Alexis Tsipras would probably end up falling in line with them.
“The downside to that is that I think half his party will rebel as a result,” said Greene, chief economist at Manulife Asset Management. That would lead to further political chaos and possibly another election, leaving the economy rudderless just as it tries to recover.
Greek government bonds also took a hit Tuesday, with the 10-year yield rising 0.84 percentage points to 7.98 per cent, a sign of investor wariness.
Analyst Theodore Krintas said international investors, who account for up to 70 per cent of daily transactions in the Greek market, opted to “just sell and get out.”
“And I think this explains the magnitude, the extent that we see the losses of the Athens stock exchange today,” added Krintas, the managing director of Attica Wealth Management.
Although Syriza has softened past rhetoric, it hasn’t clarified whether it would resort to a unilateral default on the rescue loans. While that would lighten Greece’s debt burden, it could have other server repercussions. It might, for example, spook international investors away from lending money to the country for years, hurting its ability to get back on its feet financially. Some suggested it could cause the country to fall out of the euro union.
Greece’s president is a figurehead with minimal political clout. But the election requires a super-majority that would include backing by some lawmakers from the overall hostile opposition, which appears beyond the reach of the struggling governing coalition. If three successive votes, from Dec. 17-29, prove fruitless, general elections must be called by early February — nearly a year-and-a-half ahead of schedule.
In a televised address Tuesday, Prime Minister Antonis Samaras nominated Stavros Dimas, a senior figure in his conservative party and former EU commissioner for the environment, as the government’s presidential candidate.
All opposition parties said they would not back him, or any candidate the government puts forth, to force national elections.
Syriza’s Tsipras said the final presidential vote, on Dec. 29, would signify the end of the governing coalition’s “catastrophic” austerity policies.
“At last, this year we will have every reason to wish a happy New Year,” he said.
The bulk of Greece’s 240 billion euros ($294 billion) in loans — those from the EU — run out this year. The last batch has still not been paid, however, as Greece and the EU disagree on whether Athens should impose more austerity cuts to qualify.
European finance ministers on Monday gave Greece a two-month extension on the bailout so they can complete the talks. Just after that, the Greek government said it was bringing forward the date of the presidential election by about two months to strengthen its negotiating position and avoid protracted uncertainty.
Analyst Holger Schmieding at Berenberg Bank said that since the financial crisis, the eurozone is much better equipped to handle a Greek “accident.” It has a bailout fund and the European Central Bank has committed to buy the bonds of troubled countries, if needed. That could help keep the trouble in Greece from hurting confidence in other countries.
Schmieding argued that nobody knows what Syriza would do in power. “Would they really implement their wild proposals and go down in history as the party that killed the incipient recovery and crashed Greece out of the euro?” he said. “That uncertainty would weigh heavily on markets.”
David McHugh in Frankfurt, Germany, contributed to this report.