Greek stock markets rebounded strongly today from a 22-year low on hopes a pro-bailout party will win crucial national elections next month, which would avoid a catastrophic rift with international creditors and keep the struggling country within the eurozone.
The main stock index in Athens soared to close up 6.9 %, with the battered bank sector chalking up solid gains.
Four polls published yesterday reversed previous trends to indicate that conservative New Democracy could come first in the June 17 vote, slightly ahead of the anti-austerity radical left Syriza party.
Although the conservatives would still fall short of a governing majority, the surveys suggested they could form a coalition government with socialist Pasok, which have also pledged to stick to Greece’s austerity commitments.
The debt-crippled country is being kept afloat by huge international rescue loans, granted on condition of harsh cutbacks and reforms that slashed living standards.
The austerity, however, also caused huge popular resentment toward New Democracy and Pasok, the two parties that accepted the terms.
Voters expressed that anger clearly in the May 6 elections, giving a boost to anti-bailout parties. But the election proved inconclusive, with none of the parties able to form a coalition government, leaving Greece to hold another ballot next month.
Greece’s bailout creditors – the other countries in the 17-nation eurozone and the International Monetary Fund – insist that if the country reneges on its austerity commitments, the rescue loans will stop.
That would unleash chaos. The government would be unable to pay hospital workers, police and teachers, pensions would dry up and a potential panic run on bank deposits would destroy the tottering financial system.
Eventually, the country could be forced to quit the 17-member eurozone, reverting to a vastly devalued form of its old drachma currency.
Fears of such an outcome have battered Greek financial markets for weeks, pushing the Athens General Index to close at a 22-year low of 485.18 points on Friday.
The latest polls, however, helped it claw back some of those losses, rising to 518.49 points.
“This is clearly due to the polls,” said Sergios Melahrinos, analyst at Solidus Securities.
He noted that if the two pro-bailout parties manage to win the election and have Greece honour its austerity commitments, banks would gain access to rescue money needed to avoid collapse.
Under the country’s latest international bailout, domestic banks that took huge losses from a bond swap that more than halved Greece’s privately-held debt will receive billions of euros to boost their capitalisation.
If a new government in Athens unilaterally tears up the bailout deal – as Syriza has threatened to do – the recapitalisation would fall through.
“A potential win by the parties that back their recapitalisation would be extremely good for lenders.”
But Mr Melahrinos warned that the market would remain vulnerable to the ups and downs in the polls in the lead up to the elections.
“New polls that show a reversal would obviously change the market picture,” he said.
Yesterday’s surveys gave New Democracy a lead over Syriza ranging from 0.5 to 5.7%, with Pasok coming third. The polls also estimated that the two pro-bailout parties would gain a combined 159 to 165 seats in the 300-member parliament, up from 149 after the May 6 vote.
One survey in To Vima newspaper found that 65% want Greece to remain in the eurozone even if it has to implement the bailout agreement as it stands, while 24% said they would prefer to exit the euro rather than implement austerity policies.
Since the beginning of 2010, Greeks have suffered repeated income cuts and tax hikes, while unemployment has hit record levels with more than one in five workers jobless after tens of thousands of businesses closed.
The country is in a fifth year of deep recession, and continues to import about twice as much as it exports.
On Monday, Greek journalists held a 24-hour strike to protest pay cuts and rising unemployment, and to press for the signing of new collective wage contracts.
The strike stopped all TV and radio news broadcasts, while most internet news portals were not updating their content. No newspapers will be published tomorrow.