Greek political risks, bailout exit agitate markets

Greek bond yields shot above the 7-percent mark on Tuesday amid investor skepticism about the country’s prospects, prompting the government to consider what action it could take to restore stability.

The yield on Greece’s 10-year bond shot up to 7.14 percent during Tuesday’s trading, a level not seen since April 2012. At the same time, 3.3 billion euros was wiped from the value of shares on the Athens Stock Exchange.

Investors, unnerved by the poor growth figures in the eurozone, appear to be reacting to the latest round of political instability, caused by the prospect of early elections if Parliament fails to elect a new president in February. They also seem skeptical of the Greek government’s plans to exit its bailout agreement early and not receive the International Monetary Fund loans due to be paid in 2015 and 2016, which amount to some 12 billion euros.

The message from the markets on the latter issue appears to be that investors would like Greece to remain under some kind of monitoring program that would include a precautionary credit line.

Finance Ministry sources played down the latest turbulence, suggesting that since the market for privately-held Greek debt is shallow it only takes movement from a few investors to affect bond yields. Nevertheless, the high yields mean that the ministry must put on hold its plans to issue a new seven-year bond.

In a bid to convey a message that the government remains united and determined, despite an increasing sense of political instability, Prime Minister Antonis Samaras is to chair a session of the Cabinet on Tuesday afternoon. The premier is expected to push key ministers to press on with pending economic reforms pledged to the troika and to finalize legislation foreseeing tax relief for citizens in order to boost the government’s waning popularity.

Sources indicated that Samaras is likely to issue a fresh response to suggestions earlier this week by leftist SYRIZA spokesman Panos Skourletis that MPs are being bribed to back the coalition’s candidate for presidential elections early next year.

Administrative Reform Minister Kyriakos Mitsotakis suggested on Tuesday that the coalition should propose its candidate for president sooner rather than later, to avoid fuelling mounting speculation and political tensions, and said a candidate from outside the sphere of politics would be preferable.