Greece is back in the epicenter of a market rout

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By

Sara Sjolin

Markets reporter

LONDON (MarketWatch) — Greece is back in the epicenter of a political drama, with fears that the latest development could spread to the rest of the eurozone.

After the Greek government decided to push forward the date of a presidential vote, now scheduled for Wednesday, investors have been forced to consider the implications of a deadlock in parliament, which could end up leading to snap elections in January. The biggest fear is that far-left party Syriza could win an early-2015 election, fueling fresh concerns about Greece’s bailout program and whether the country will stay in the eurozone. 
“Recent developments in Greece are worrisome to investors. Many fear that the political challenges in Greece could lead to its ultimate exit from the monetary union and default,” analysts at Brown Brothers Harriman said in a research note earlier this week.

Biggest stock slide ever

Just how worrisome these developments are to investors is illustrated in the chart below.

Traders in Europe first got a chance to react to the news on Tuesday morning last week and the initial reaction was run. In that one day, Greece’s Athex Composite index GD, -1.41%  tanked 13%, marking the worst day ever for the benchmark, according to FactSet data. It also dragged down the pan-European Stoxx Europe 600 index SXXP, +0.37%  which took a 2.3% dive. For the full week, the Greek index plunged 20%, making it the worst performer in Europe. The wider market rout in Europe was also partly due to the continued slump in oil prices.

Yields at one-year high

The political jitters were further reflected in the bond market, where the borrowing cost on 10-year Greek government bonds GR10YT, +0.00%  jumped to the highest level in almost a year on Friday, according to Tradeweb. Higher yields are usually a sign of investor concern with a country’s economic and political circumstances.

Most indebted eurozone country

But how bad is Greece’s stage of affairs? The country actually escaped a six-year long recession in the third quarter and grew by the fastest pace of all eurozone countries, but that’s only part of the story. Unemployment is still at the painful side of 25% and with debt levels at 174.1% of GDP (as illustrated below), the country is still the most indebted nation in the eurozone, according to Greek daily Ekathimerini.