Markets initially bounced on Monday morning after Greece’s election eased fears that the single currency would break up, but the rally proved short-lived amid persistent uncertainty over the global economy and other eurozone countries.
A narrow win for Greece’s pro-bailout party, New Democracy, initially spurred markets higher on hopes that the embattled country has bought more time to remain in the euro. Equities across Europe ticked higher and the euro strengthened, at point touching a one-month high of $1.2748. Riskier commodities, such as crude oil and copper, also rose.
But, the early rally faltered as uncertainty resurfaced over the situation in Spain and other eurozone countries, including Italy. Having initially ticked up, Spain’s IBEX dropped 1.5pc and Italy’s MIB struggled to hold onto its gains, also sliding 1.5pc. London’s FTSE 100 managed to tick up, adding 0.4pc. Germany’s DAX stayed in positive territory, rising 0.7pc, but the euro dropped to $1.2634.
Although the Greek poll result eased imminent fears of a Greek exit from the euro, concerns over Spain’s sovereign debt problems prompted a rise in the country’s 10-year bond yields, which spiked over 7pc. Italy’s 10-year yield breached 6pc.
Political parties, led by New Democracy leader, Antonis Samaras, began forging a government on Monday. David Cameron, who is in Mexico for the G20 summit, said the outcome of the Greek election looked clear, but warned a delay in forming a government “could be very dangerous”.
“The outcome of the Greek election looks clear in terms of a commitment to stay in the eurozone and to accept the terms of the memorandum,” the prime minister said. “But I think those parties that want that to happen can’t afford to delay and position themselves. If you are a Greek political party and want to stay in the eurozone and accept the consequences that follow you have got to get on with it and help form a government. A delay could be very dangerous.”
