Greek bonds and stocks were hit hard by a deadlock in debt negotiations, after Greece’s new anti-austerity government on Monday evening rejected a six-month extension to its current 240-billion-euro ($272 billion) bailout program, which is set to expire at the end of the month.
The Eurogroup talks among eurozone finance ministers ended abruptly, with Prime Minister Alexis Tsipras and his finance minister, Yanis Varoufakis, saying the terms of a proposed deal would hurt Greece’s economy and society. In particular, Varoufakis said he was unwilling to accept further cuts to the pensions of low-income retirees and an increase in value-added sales tax.
“Varoufakis and Tsipras are holding out for a deal that sees both a six-month extension to the bailout alongside the diluting of certain austerity measures that Syriza deem unacceptable,” said Connor Campbell, financial analyst at Spreadex, in a note.
“The eurozone is perpetually engaged in a game of ‘Grexit’ chicken, with both sides seeing how far they can push the other before the situation snaps.”
Greece’s current bailout program expires on Feb. 28. If negotiations remain in a deadlock, the Mediterranean nation will lose access to the rescue loans that have kept it afloat for almost five years, potentially setting the scene for a default and Greece’s withdrawal from the shared currency, or “Grexit”.
The impasse hit assets in Europe and the U.S., with Greek stocks being slammed the hardest. The Athex Composite index GD, -2.05% dropped 1.6% to 846.16, deepening its week-to-day loss to 4.8%. Over the past 12 months, the Greek benchmark has shaved off about a third of its value.
Among biggest losers in the index, Kleemann Hellas KLEM, -6.94% lost 5.8%, F.H.L. I. Kyriakidis Marbles-Granites KYRM, -4.74% dropped 4.7% and Coca-Cola HBC EEE, -0.93% fell 2.9%.
The yield on 10-year Greek government bonds jumped 71 basis points to 10.394%, while the 2-year yield surged 1.41 percentage points to 18.651%. The sharp rise in borrowing costs indicates investors are nervous about the financial future, in particular the short-term horizon.
Elsewhere, the Global X FTSE Greek 20 ETF GREK, -6.96% slumped 8.4% ahead of the U.S. stock-market open.
The Eurogroup insists that Greece has until Friday to come up with a new plan, and Varoufakis looks set to make a new proposal with the next few days. Eurogroup Chairman Jeroen Dijsselbloem has suggested finance ministers could meet again on Friday to try to reach an agreement, media reports said.
