GREEKS FORCED BACK TO POLLS
MARKETS collapsed again yesterday after Greece announced that new elections will take place next month, raising the spectre of the country rejecting its bailout and being forced to leave the Eurozone.
Stocks dropped across Europe, and struggling Eurozone governments saw their borrowing costs jump sharply on the renewed uncertainty, while German bund yields fell to a record low as investors rushed to safe havens.
Fears of a bank run in Greece were also escalating yesterday after minutes of a meeting between President Karolos Papoulias and party leaders showed that up to €800m (£638m) of deposits left Greek banks on Monday alone as customers started withdrawing cash in case capital controls are introduced or the country leaves the euro. In an average month, total withdrawals are usually between €2-3bn.
The President warned of a “great fear” that “could develop into panic”.
Greek politicians failed to form a new government after elections 10 days ago, as second-placed Syriza refused to work with the pro-bailout PASOK and New Democracy parties.
Polls since the election show far-left Syriza is now the most popular party. If it forms an anti-bailout government, Greece could run out of cash and be forced out of the Eurozone.
IMF boss Christine Lagarde also acknowledged the prospect of the country leaving the euro, saying the IMF must “be prepared for anything.”
Greek stocks hit a 22 year low falling by 4.86 per cent on the new election’s announcement, but recovering slightly to leave a 3.62 per cent drop.
Spain’s IBEX lost 1.6 per cent while Italy’s FTSE MIB dropped 2.56 per cent.
The FTSE 100 fell to a new 2012 low, closing down 0.51 per cent, while the French CAC fell 0.61 per cent and the German DAX 0.79 per cent.
Greek 10-year borrowing costs jumped 2.23 percentage points to 29.79 per cent, Spain’s rose 0.12 points to 6.35 per cent and Italy’s rose 0.167 points to 5.864 per cent. Bund yields briefly hit a new low of 1.449 per cent.
In December and February the ECB injected €1 trillion into banks in its three-year long term refinancing operations (LTRO), with the aim of averting a renewed credit crunch. But just a few months later 38 per cent of investors already expect another LTRO as they fear banks will not have been able to deleverage enough by the time the current loans need to be repaid.
Meanwhile the Eurozone economy ground completely to a halt in the first quarter, official figures revealed, with only strong German growth keeping the currency area out of recession.