LONDON (Reuters) - A relatively contained decline in Greek stock and bond prices on Monday showed global markets believe a new anti-bailout Greek government has limited scope to tear up deals with its creditors and the euro zone can avoid a fresh crisis.
The day after the left-wing, anti-bailout Syriza party emerged as the winner in Sunday’s vote, yields on three-year government bonds rose more than 2 percentage points to 12.36 percent, still well below highs hit this month.
The main Athens equity index closed down 3.2 percent, led lower by heavy losses in some of its traditionally volatile private banks. One, Piraeus Bank, fell 17.6 percent but stayed above December lows. Overall, the losses were far from unusual for Greece’s volatile markets.
Although there may be nervy days ahead as the new government sets out its stall, traders and investors said markets could remain relatively calm unless its new leaders and euro zone partners start to discuss any one of three subjects:
First, open threats of “Grexit” from the euro zone; second, any writedown of the country’s private sector debts; or third, an easy capitulation of euro sovereign creditors that boosts support for other anti-austerity parties, such as Ireland’s Sinn Fein or Spain’s Podemos, that could sow contagion elsewhere.
“For us it is important to see common ground but when we look at other markets we don’t want the rest of Europe to be seen to be rolling over too quickly and too easily,” said UBS strategist Justin Knight.
Syriza, which won 149 seats in the 300-seat parliament, formed a government with a small right-wing party, Independent Greeks, which also opposes the EU/IMF rescue deal.
Syriza had pledged to end austerity and to renegotiate terms of Greece’s 240 billion euro bailout. However, Greece faces debt repayments of about 10 billion euros this summer and is unable to tap markets because of its sky-high borrowing costs.
“It comes down to how hard they are prepared to press and what Germany etc is prepared to give them,” said Gary Jenkins, chief credit strategist at ING Capital. “If this was a game of poker, in reality Greece hasn’t got much of a hand.”
Stefan Rondorf, strategist at Allianz Global Investors in Frankfurt, said the new government would have difficulty securing major concessions as long as Greeks want to stay in the euro zone, Greek banks are dependent on European Central Bank funding and Athens needs EU funds.
The prospect of inclusion in the ECB’s 1 trillion euro bond-buying scheme unveiled last week would also depend on clarifying Greece’s status in the bailout programme, he added.
Some analysts said there could be room for compromise on debt relief. Creditors could further cut the interest rate charged on Greek loans or extend their maturity.
Jenkins at ING Capital, said that while new Prime Minister Alexis Tsipras could hypothetically take Greece out of the euro zone or default on its debt, now was not the best time to do either. Instead, by keeping the euro, Greece could benefit from the ECB programme.
“It’s not my expectation that they would push the nuclear button but, at the same time, I’m not putting my entire pension fund into Greek bonds, he said.
Editing by Peter Graff