American financial analysts Darren Williams and Dennis Shen of AllianceBernstein say that markets are reacting poorly to Greece’s plan for an early exit from its bailout program. They foresee snap elections, arguing that an early exit poses a threat to Europe’s peripheral markets. According to the pragcap.com report, “based on the recent sell-off in Greek bonds, there are big doubts in financial markets about supporting Greece without external involvement and against a backdrop of heighetened political risks.” The yield on the 10-year bond recently skyrocketed to 8.0 percent after a 5.6 percent yield in September. The analysts estimate that Greece will be forced to stay under some sort of support program from the European Union. Williams and Shen claim that the Samaras government will most likely be forced to endure early elections since they cannot find the 180 votes needed to elect a president of the republic from the current parliament. Opposition parties will likely block the presidential candidate and push for premature elections. And as opinion polls show, SYRIZA “might win nearly half the seats in the event of an early election, potentially ushering in a government under its leadership. Financial markets and European political leaders are very uneasy about this prospect. SYRIZA, with its traditional anti-establishment approach, is likely to escalate confrontation with Greece’s official lenders to new levels.” Early elections in the first months of 2015 will put selling pressure on Greek bonds. There is a serious possibility of a spillover to other peripheral markets. “While in recent years there has been greater differentiation by investors between Greece and the rest of the periphery, the threat of an early election could reintroduce a degree of contagion,” the report concludes.
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