Greek stock market plummets on fear of political crisis

By Nicholas Paphitis, AP

ATHENS–The Greek stock market had its biggest plunge since 1987 Tuesday as concerns mounted that the country is heading for a political crisis that could jeopardize its financial rescue program.

The benchmark stock index in Athens dropped 12.8 percent after the conservative-led government brought forward the date of a presidential vote.

If the vote in Greece’s parliament is inconclusive, investors fear it could lead to general elections and a possible victory for an opposition party that wants to modify the bailout.

Investors also dumped Greek government bonds as they became more wary of the country’s ability to repay its debt.

The main left-wing opposition party, Syriza, which is leading in the polls, has said it will demand a substantial cut to what Greece owes in rescue loans if it is elected.

Megan Greene, chief economist at Manulife Asset Management, said that the country’s main creditors, the European Union and the International Monetary Fund, are not likely to go along with that. Greene said Syriza’s leader, Alexis Tsipras, would probably end up falling in line.

��The downside to that is that I think half his party will rebel as a result,�� said Greene. That could lead to further political chaos and possibly another election, leaving the economy rudderless.

Greek government bonds took a hit Tuesday. The yield on the 10-year bond jumped 0.84 percentage point to 7.98 percent as investors demanded to be paid more to loan money to Greece.

Theodore Krintas, managing director of Attica Wealth Management, said that international investors, who account for up to 70 percent of daily transactions in the Greek market, opted to ��just sell and get out.��

��I think this explains the magnitude, the extent that we see the losses of the Athens stock exchange today,�� Krintas said.