May 14, 2012
World stocks fell sharply Monday as traders voiced new concerns about political uncertainty in Greece. Analysts say failure by the country’s politicians to form a coalition government could lead to new elections. And the growing uncertainty is stoking fears that Greece could become the first country to drop out of the 17-nation eurozone.
Greek newspapers warn of an uncertain future. "Drama" says one headline; another adds: a "Country On The Edge of a Cliff". With coalition talks by the nation’s political leaders going nowhere - market analyst Theodore Krintas says Greece is like a rudderless ship.
"We see that the European as well as the Greek markets are afraid that the political instability that just started last week is going to last for another month," Krintas said.
The political problems in Greece are magnified by shrinking economies in Europe and a change of leadership in France.
Robert Halver is head of market research at Germany’s Baader Bank
"It’s all politics right now and the German equities are suffering because we have no clear picture considering Greek policy, a French policy, a European policy," he said.
Recent opinion surveys show Alexis Tsipras, the leader of Greece’s radical leftist party, would come out on top if new elections were held next month. His party wants to remain in the eurozone but opposes the terms of an EU bailout.
Market consultant Nick Beecroft calls that an unrealistic position.
"There’s a real danger in the next six months we see a number of misjudgments on the part of the Greek populace, led, I would say astray, by Tsipras’ suggestion that Greece can renege on the austerity program and stay in the eurozone," Beecroft said.
European policy expert George Tzogopoulos says such a move could lead to the return to the Greek drachma (former Greek currency), with potentially disastrous consequences.
"Political chaos and social instability will follow. Small business and enterprise will become immediately bankrupted. And the new Greek currency will be devaluated," Tzogopoulos said.
Another potentially divisive election in June could make a second bailout for Greece less likely.
European leaders meeting in Brussels had a stern message for Greece: stick with the program or face an uncertain future outside the eurozone.