ATHENS (AFP) ― Greek stocks saw their biggest one-day drop in nearly three decades on Tuesday after the government unexpectedly brought forward a high-stakes presidential vote, raising fears of a potential political crisis.
The vote by 300 members of parliament to replace President Karolos Papoulias was due in February but a first round has now been set for Dec. 17.
The election is a key test for embattled Prime Minister Antonis Samaras, who would be forced to call snap general elections if his candidate ― former EU Environment Commissioner Stavros Dimas ― fails to garner enough support.
The prime minister said he had brought forward the election to clear “clouds of political instability in Greece and political uncertainty over Greece abroad.”
He added that Dimas, 73, is “respected by the international community” and his election would enable Greece to “officially enter the post-bailout era.”
But news of the early vote sent stocks plunging, with losses accelerating after Dimas was formally named as the government’s candidate.
The Athens overall index closed down 12.78 percent to 902.84 points on Tuesday, the largest one-day drop since 1987. It had fallen by as much as 13.15 percent earlier in the day.
European stocks also slumped, and the yields on German 10-year bonds ― a safe-haven asset ― fell to a new record low.
Analysts warned that the political uncertainty could stall Greece’s fiscal reforms which are required under the terms of a $295-billion bailout package accorded by the European Union and the International Monetary Fund.
Greece is only gingerly creeping out of a debilitating recession that lasted six years and which left about a fifth of the population unemployed.
Tensions are still running high with many Greeks fed up with years of austerity, and Athens is still locked in negotiations with its creditors for the final tranche of EU aid funds.
Asked about the upcoming vote, EU Economic Affairs Commissioner Pierre Moscovici told reporters in Brussels “the markets should feel maybe a bit more secure.”
“I believe that if P.M. Samaras chose this way, it’s because he’s confident in his capacity to have a successful election,” Moscovici said.
Berenberg analysts however said in a note that “a Greek accident remains a potent risk … the risk of a political backlash and reform reversal is thus very real for now.”
Unsettled investors dumped shares in top banks, with stocks in the four leading lenders ― National Bank, Piraeus Bank, Alpha Bank and Eurobank ― losing between 13.5 percent and 20 percent.
The yield of ten-year Greek government bonds also jumped to 8.07 percent from 7.24 percent on Monday.
Samaras has a narrow majority of 155 seats, and his candidate is therefore unlikely to secure an outright win in the first round.
A second and third round are scheduled for December 23 and 29, but the bar for a win is lowered in the final round ― with 180 votes needed.
“In our view, it is highly uncertain whether the current government can achieve this level of support,” said Citi European Economics.
Failing victory, Samaras would have to call a snap general election at a time when radical left party Syriza ― which has pledged to reverse many of the reforms imposed by the country’s EU-IMF creditors ― is leading opinion polls.
With early polls now a prospect, Syriza leader Alexis Tsipras said Tuesday: “On December 29, the disastrous activity of the bailout government comes to an end.”
“The new year will bring popular rule and a strong mandate for a government of social salvation,” he said.
A 40-year-old former Communist, Tsipras has pledged to raise wages and pensions, halt privatizations and re-negotiate Greece’s bailout agreement with the EU-IMF creditors.
In 2012, back-to-back elections were needed in May and June to form a shaky coalition government, stalling Greece’s fiscal reforms and sparking speculation that the country was about to be ejected from the euro.
“Election talk has always been bad for the market,” Vassilis Korkidis, head of the confederation of Greek commerce, told To Vima radio.
“Nobody knows what Syriza would do in power … that uncertainty would weigh heavily on markets,” noted Hamburg-based Berenberg.
The early presidential vote comes as Greece brokered a two-month extension from eurozone ministers for its multi-billion bailout program.
The latest budget, passed on Sunday, forecasts 2.9 percent growth and a deficit of 0.2 percent but Greece’s creditors regard these estimates as overly optimistic.
