May 14 2012
The political crisis in Greece leaden markets
Greece still has no government. The risk of bankruptcy and the issue of leaving the euro area is raised again. Result: the stock prices fall and investors flock to German bonds, even if they yield nothing. The Eurogroup meeting will be devoted to Greece and Spain
After a difficult week, the stock markets reopened on Monday sharply lower against the backdrop of prolonged political stalemate in Greece, epicenter of the debt crisis, while be held a meeting of the Eurogroup.
Monday morning, Paris was losing more than 2% in early trade, London 1.33%, 1.31% Frankfurt. In Milan (-2.02%) and Madrid (-2.47%), the decline was more pronounced after banks have announced they will place new provisions because of subprime mortgage they hold in their portfolios. The day promises to be difficult, while "the risks to the euro area are still very real," said Chris Weston of IG Markets.
More than a week after the parliamentary elections, Athens still has no government. But the prolonged absence of government raised concern among investors in a delay or suspension of financial aid promised in Athens to enable it to meet repayment dates and ensure payment of arrears.
Monday, the Greek President, Karolos Papoulias, will try to snatch a coalition government during the final meeting between the country's political leaders. But many observers believe the country is moving towards new elections in June as the positions between pro-and anti-austerity diverge.
Another sign of market nervousness, the 10-year rate of German bond (Bund) fell Monday morning at their historic low (1.47%). The political situation seems to push investors to turn to these securities deemed safe. "Investors plébiscitent increasing security even if the debt did their German report anything," said Nordine Naam, bond strategist at Natixis. He added: "Fears of an output of Greece of the euro are strong and, in case of persistent political deadlock in that country, the Bund interest rate expected to fall further in the coming days".
It was in this tense situation the finance ministers of 17 member countries of the euro area shall meet this afternoon in Brussels. A signal strength should be sent to Athens, to push the Greek authorities to put in a faster end to this in-between chaotic. Spain will, too, part of the program. The Spanish Minister of Finance, Luis de Guindos, will try to reassure, giving an overview of the reforms that Madrid will set up to consolidate its public finances. Is that Spain is in the viewfinder markets. The rate of its 10-year government bonds is back above 6%.
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