For a country with a relatively small economy and stock market, Greece continues to have an almighty impact on investor sentiment in the rest of the world. Over the last few years it has pulled the Eurozone into crisis more than once, and now it just might do so again – it’s already been partly responsible for bringing the euro down to its lowest level for 11 years.
What’s happened this time? Actually not a default or a riot, but a vote. At the time of writing, the Syriza party had won the Greek election, but looked set to fall two seats short of an overall majority. This is significant because the Syriza party, which is very much left of centre in its politics, is led by Alexis Tsipras, who is firmly against the austerity measures that have been imposed on the indebted European country since the financial crisis. He wanted to renegotiate terms with Greece’s creditors, and, although he must form a coalition in order to govern, his party’s strength is such that it appears he will have the power to do exactly that.
The eurozone, and investors within it, had begun to believe over the last year or so that the crisis days were behind them, but the prospect of a whole new round of negotiations over Greek debt raise the prospect of further turmoil, and markets have responded accordingly. This morning, all major European indices, including London, Frankfurt and pan-European indices, are down, with Greece’s Athens General index down more than 5% already, with banks falling much further: Piraeus Bank opened 16% lower than yesterday, and National Bank of Greece 10%. Greek bonds are being similarly hammered, up half a percentage point already on 10-year paper, although other eurozone debt – including previously troubled states like Spain and Portugal – do not yet appear to be responding. However, the euro itself shows the starkest reaction: it was already at an 11-year low last week and has now fallen ever further.
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