Dec. 9, 2014, 10:20 AM
Stocks in Greece crashed on Tuesday. At the close, the Athens Stock Exchange Index was down a mindboggling 12.78%.
That’s the worst fall since 1987.
The steep decline comes after the announcement that Greece’s presidential elections are being brought forward to Dec. 17.
The presidential election is conducted by Greece’s legislators, not its population. But the government needs a super-majority to install a president, which it doesn’t have. If it can’t elect a president, that might precipitate a general election, and the radical Coalition of the Left (Syriza) is leading the polls.
The uncertainty also means sovereign bond yields are breaking out of the region they’ve been in for the past few days, up from 7.2% to beyond 7.75%. The yield on a 10-year bond is a common measure used to show how expensive it is for governments to finance their debt. Yields saw a recent peak just below 9% in October, when the far-left anti-austerity party Syriza took a polling lead, and the government was planning to exit its bailout early.
Deutsche Bank’s Jim Reid explains the situation here:
The failure to elect a President by the existing parliament would lead to a national general election within 3-4 weeks, with the current SYRIZA opposition party leading in the polls (according to various opinion polls). So very large electoral uncertainty and the lack of an official financing backstop ensures a meaningful period of uncertainty ahead for Greece. In rounds 1 and 2 (Dec 17th and 22nd) the Government requires 200 out of 300 MPs which is extremely unlikely. In the final round (Dec 29th) they require 180 votes.
Deutsche’s George Saravelos also says there’s a 60/40 chance of a Greek parliamentary election. With Syriza in the lead, that’s a big risk for bondholders. The insurgent party wants Greece’s creditors to take a major haircut (dramatically cutting the value of their investment), and for existing bailout programs to be canceled.
Here’s a longer term look at Greece’s ASE index. As you can see, the Greek stock market has a history of massive swings.
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