Investors uneasy despite Greek poll
INVESTORS REMAINED braced last night for a volatile session on stock markets today if the European Central Bank does not act to assuage fears about the financial crisis engulfing the euro zone.
Greece’s two largest pro-bailout parties, New Democracy and Pasok, appeared last night to have won enough seats to forge a parliamentary majority, alleviating the worst of investors’ concerns and buoying the strength of the euro against the dollar.
Initial official projections from the Greek elections suggest the conservative New Democracy party received more votes than the left-wing, anti-austerity party Syriza, which had promised to tear up the terms of the EU-International Monetary Fund bailout package and potentially send the country crashing out of the euro zone.
However, while the market chaos that a Syriza victory might have posed is likely to have been averted, investors still believe some form of clear policy response from the ECB is necessary to shore up markets as what Bank of England governor Mervyn King last week called “a black cloud” continues to linger on the world economy.
European stocks and the euro advanced for a second week last week, amid speculation that central banks will take steps to stimulate the global economy. However, the Stoxx Europe 600 Index, a benchmark measure for European stocks, is still down 10 per cent from a high on March 16th, as a result of fears about a possible “Grexit” and uncertainty about the extent of the bad debts in the Spanish banking system.
Investors will be closely watching the bond yields on Spanish debt today as markets digest the results of the Greek election. The yield on Spain’s 10-year benchmark bond grazed 7 per cent on Friday, even after it accepted a €100 billion credit line for its banks.
World Bank president Robert Zoellick said yesterday that financial-market reaction to the rescue plan for Spain’s banks shows that it was bungled, as the announcement of the bailout failed to stop a rise in its borrowing costs.
Spanish prime minister Mariano Rajoy is urging the ECB to take measures to prevent Spain from losing access to markets.
The Spanish crisis has already created problems for Irish exporters because of its destabilising impact on the export credit insurance market, the Irish Exporters Association warned on Friday.
Leaders of the Group of 20 nations are gathering in Los Cabos in Mexico today for a two-day summit dominated by the financial crisis in Europe and its threat to the global economy. While the G20 agreed earlier this year to boost IMF resources that could be channelled to Europe, German chancellor Angela Merkel last week called on the G20 to do more. The next big meeting in Dr Merkel’s diary is Rome on June 22nd with French president François Hollande, Italian prime minister Mario Monti and Mr Rajoy. The “big four” will seek common ground before European leaders hold another summit in Brussels on June 28th-29th.