Syriza's Greek election victory hits bank shares and drives up borrowing costs
Syriza’s stunning election victory in Greece sent investors scrambling to sell the stricken nation’s debt and dump bank shares as the future of its international bail-out hung in the balance.
The poll victory for the anti-austerity Left-wing party led by Alex Tsipras — who immediately formed a coalition with Independent Greeks, a Right-wing anti-bail-out party — sent Greece’s cost of borrowing for 10 years shooting 40 basis points higher to 8.58%.
On Athens’ main stock market, Greek banks were the biggest fallers, with Piraeus Bank down more than 9% and Eurobank Ergasias off 7% — although the wider market largely stemmed an early 5% fall.
But experts said the fears of a Greek euro exit were overplayed and the fallout was also contained elsewhere in Europe as the European Central Bank’s €1.1 trillion (£823 billion) quantitative easing efforts last week continued to underpin equities.
Most major bourses were flat or showing small gains.
Now the focus shifts to Tsipras’ pledge to renegotiate the terms of two bail-outs from the EU, IMF and ECB since 2010 which have helped condemn the nation to a six-year recession and an unemployment rate of 26%.
CMC Markets analyst Michael Hewson said: “The agreement between Syriza and the Independent Greeks suggest that Tsipras intends to play hardball.
“Given they come from polar opposites of the political divide of Left and Right, it suggests that what unites them is more important to them than what divides them, namely pushing back against austerity and bail-outs.”
The new government looks set for a huge clash as the head of Germany’s Bundesbank, Jens Weidmann, said he hoped “the new Greek government will not make promises it cannot keep and the country cannot afford”.
ECB board member Benoît Cœuré also insisted the central bank would not take part in any debt cut for Greece.
Greece is due to receive €8 billion from the IMF this year. Experts said fears of a Greek exit were overplayed.
Chris Scicluna, head of economic research at Daiwa Capital Markets, said: “You wipe out the banks, you have a disorderly currency, chaos ensues and the public finances suffer as the tax base disappear.
“They have more to lose than their creditors. A face-saving deal for both sides looks likely.”
Investors are still looking for a safe haven for their cash, however. Deposits at the Swiss National Bank jumped nearly Swfr26 billion (£19.5 billion) to Swfr365 billion last week, despite a negative interest rate of minus 0.75% on deposits.
