Saturday 1 October 2016

Greece crisis: Prospect of early election grows as markets dive

Published 04/08/2015 | 14:28

Greek Prime Minister Alexis Tsipras looks on during the Prime Minister's Questions at parliament in Athens, Greece July 31, 2015.Greek Prime Minister Alexis Tsipras on Friday confirmed he authorized his former finance minister to prepare contingency plans in case the country was forced to leave the euro, calling it the obligation of a responsible government. REUTERS/Yiannis Kourtoglou
Greek Prime Minister Alexis Tsipras looks on during the Prime Minister's Questions at parliament in Athens, Greece July 31, 2015.Greek Prime Minister Alexis Tsipras on Friday confirmed he authorized his former finance minister to prepare contingency plans in case the country was forced to leave the euro, calling it the obligation of a responsible government. REUTERS/Yiannis Kourtoglou
An employee looks on at electronic board displaying stock prices at the entrance of the Athens Stock Exchange, Greece, August 3, 2015. Greece's stock market plunged nearly 23 percent on Monday when it opened after a five-week shutdown brought on by fears the country was about to be dumped from the euro zone. REUTERS/Yiannis Kourtoglou

Greece's left-wing government has conceded that dissent within the ruling party was likely to force an early election, while markets fell again under the weight of plummeting bank shares.

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The government is relying on opposition party support for approval in parliament of new austerity measures demanded by bailout lenders, following a revolt by nearly one fourth of its own MPs.

People line up outside a National Bank branch in Athens
People line up outside a National Bank branch in Athens

Government spokeswoman Olga Gerovasili said the government would not form a national unity government and described early elections as "likely".

"A solution will be found, since the country needs a strong government," Ms Gerovasili said. "(Early) elections are likely but that doesn't mean we will be dealing today with when they will take place."

An employee hands over the phone at the entrance of the Athens Stock Exchange, Greece, August 3, 2015. Greece's stock market plunged nearly 23 percent on Monday when it opened after a five-week shutdown brought on by fears the country was about to be dumped from the euro zone. REUTERS/Yiannis Kourtoglou
An employee hands over the phone at the entrance of the Athens Stock Exchange, Greece, August 3, 2015. Greece's stock market plunged nearly 23 percent on Monday when it opened after a five-week shutdown brought on by fears the country was about to be dumped from the euro zone. REUTERS/Yiannis Kourtoglou

Amid the uncertainty, the main stock index fell another 2% in afternoon trading, the second day the market has been open following a five-week closure.

Most shares traded higher but banks tumbled lower, once again hitting the 30% lower trading limit. The overall index plummeted 16.2% on Monday.

An employee talks on the phone in Athens Stock Exchange, Greece August 3, 2015. Greece's stock market plunged nearly 23 percent on Monday when it opened after a five-week shutdown brought on by fears the country was about to be dumped from the euro zone. REUTERS/Yiannis Kourtoglou
An employee talks on the phone in Athens Stock Exchange, Greece August 3, 2015. Greece's stock market plunged nearly 23 percent on Monday when it opened after a five-week shutdown brought on by fears the country was about to be dumped from the euro zone. REUTERS/Yiannis Kourtoglou

Greece's economy is reeling from the impact of limits on money withdrawals and transfers that the government imposed on June 29 to avoid a collapse of the banking sector.

Uncertainty over Greece's negotiations for a new bailout and over the stability of the government have heightened concerns.

Greek Prime Minister Alexis Tsipras answers questions at parliament in Athens, Greece July 31, 2015. Greek Prime Minister Alexis Tsipras on Friday confirmed he authorized his former finance minister to prepare contingency plans in case the country was forced to leave the euro, calling it the obligation of a responsible government. REUTERS/Yiannis Kourtoglou TPX IMAGES OF THE DAY
Greek Prime Minister Alexis Tsipras answers questions at parliament in Athens, Greece July 31, 2015. Greek Prime Minister Alexis Tsipras on Friday confirmed he authorized his former finance minister to prepare contingency plans in case the country was forced to leave the euro, calling it the obligation of a responsible government. REUTERS/Yiannis Kourtoglou TPX IMAGES OF THE DAY
An employee of the Athens Stock Exchange speaks on the phone in the reception hall in Athens (AP)
Greek Prime Minister Alexis Tsipras answers questions during the Prime Minister's Questions at parliament in Athens, Greece July 31, 2015. Greek Prime Minister Alexis Tsipras on Friday confirmed he authorized his former finance minister to prepare contingency plans in case the country was forced to leave the euro, calling it the obligation of a responsible government. REUTERS/Yiannis Kourtoglou

European markets were unaffected by the Greek market nosedive, however, which Italian finance minister Pier Carlo Padoan described as "normal market behaviour in exceptional circumstances".

"Frankly I am not concerned. Looking at the figures, I thought this was more or less what one should expect after weeks of stocks being closed in a country which is indeed in deep recession," he said.

The political outlook appears tenuous, with Panagiotis Lafazanis, a prominent dissenter and member of the ruling Syriza party, urging colleagues to join him in voting against the government when the bailout deal is brought to parliament.

"I personally will not vote for a new bailout that will continue to destroy the country and hurt its people," Mr Lafazanis said. "Syriza lawmakers must fight to the last minute to stop the government signing a third bailout."

Finance minister Euclid Tsakalotos has been holding new meetings with bailout negotiators from the European Commission, European Central Bank (ECB) and International Monetary Fund (IMF).

Ms Gerovasili said the government remained committed to concluding the talks by August 18 and that work on drawing up the text of a draft agreement would start this week.

Greece faces a loan repayment on August 20 worth more than 3 billion euro (£2.1 billion) to the ECB. To avoid defaulting on it, Greece would need money from the bailout programme it is negotiating or, short of that, an interim loan from its creditors.

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