European investors have found some confidence in morning trading today, after Greece’s pro-austerity party led a weekend opinion poll. The poll showed the New Democracy party to be around 6 percentage points ahead of its nearest rival. Despite this result suggesting the party would not achieve overall control if elected, markets still rose by at least 1% in London, Paris and Frankfurt in this morning’s trading.
The country’s future remains uncertain however, as Greek newspaper To Vima published a secret government memo yesterday suggesting that Greece could be out of cash by mid-June. Such a situation would leave the country unable to pay the wages and pensions of public sector workers. The ‘run out point’ is even closer than originally expected as tax revenues continue to diminish and international lenders withhold €1bn from the bailout money pending new agreement to austerity measures.
But there is some solace to be had by investors: the New Democracy party has signed up to the IMF and EU bailout deal, and is polling at up to 28%, a clear lead on its rival Syriza at little more than 20%. The party’s pro-austerity stance will ease fears that the country is about to crash out of the single currency and default on its loans. In response to the poll, London’s FTSE 100 was up 1%, Paris’s Cac 40 was up 1.1%, and Frankfurt’s Dax was up 1.2%.
Eurozone woes continue to unfold in epic form however, with Spain’s fourth-largest bank, Bankia, receiving a €19bn bail-out on Friday, which in turn prompted a 27% plunge in the bank’s share price in early trading today. All eyes are on the country as its financial system groans under the weight of bad debt and soaring unemployment meaning growing numbers of bank customers cannot pay their dues.
The bank could also be forced to sell its 12% stake in airline owner IAG (which incorporates British Airways). The stake, valued at around £313m, makes Bankia the joint largest shareholder in IAG, but European authorities and regulators will generally force bailed-out banks to dispose of none-core assets and businesses, as well as suspending dividends until the taxpayer has been refunded.
It’s hard to tell when the EU/IMF kitty will be exhausted by all these bailouts (and indeed if BRIC countries are likely ever to make their own contribution to the IMF), but for the time being investors are putting their faith in New Democracy to stabilise the pan-European financial weather. Let’s hope the party can form a decent coalition before Greece’s coffers are down to their last fiver…