Euro Shares Tank As Greece Flirts With Return to the Drachma

Published Mon, May 14th, 2012   Wall Street Daily Research

 

A week after elections, Greece is without a new coalition government, leading to more discussion about the country leaving the euro. In response, European shares fell to their lowest levels in over four months, with Greek bank shares among the biggest fallers.

If the country were to hold fresh elections to establish a coalition, the polls now show that the leader of the radical leftist party, Alexis Tsipras, would win the vote. Tsipras says he intends to overturn the bailout and austerity measures, but still wants Greece to remain a member of the eurozone. Nick Beercroft, Senior Markets Consultant of Saxo Bank, says those two views are incompatible:

“There’s a real danger in the next six months – we see a number of misjudgments on the part of the Greek populous led, I would say, astray by Tsipras’ suggestion that Greece can renege on the austerity program and stay in the eurozone. And there may also be a miscalculation going on by let’s say German politicians that Greece can exit without disastrous consequences.”

An exit from the eurozone would also mean a return to the drachma and further descent into financial instability, says George Tzogopoulos, of the Hellenic Foundation for European and Foreign Policy:

“Political chaos and social instability will follow. Small business and enterprise will become immediately bankrupted, and the new Greek currency will be devaluated.”

The course of events will be decided come mid-June, when Greek voters are likely to head back to the polls.