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Markets are seriously spooked by the possibility of a Grexit

Investors are betting it won't be long before Greece leaves the Euro.

by Rachel Savage
Last Updated: 10 Feb 2015

European stock markets are a sea of red today as the threat of a Greek exit from the Euro (or Grexit, for short) looms large once again. Greece’s new left-wing leaders have been doing the rounds in the last week to try and convince the rest of the EU to let it off the bailout hook, but its pleas have not fallen on friendly ears.

The FTSE 100, French CAC 40 and German DAX stock markets were down between 0.6% and 1.6% by midday, while the beleaguered Athens Stock Exchange had fallen almost 6% (it’s down almost 40% in the last year). Meanwhile, Greek 10 year bond yields (i.e. the cost of government borrowing) jumped above 11%, having been as low as 5.5% in August. The Euro itself was, for once, relatively unmoved.

On Thursday, German finance minister Wolfgang Schaeuble said he and his leather jacket-wearing counterpart Yanis Varoufakis counterpart had ‘agreed to disagree’ over restructuring Greece's €315bn (£234bn) worth of foreign debt. Then Greek prime minister Alexis Tsipras said on Sunday his government wouldn’t be extending the Eurozone ‘bailout barbarity’ when it expires at the end of the month – instead he wants a bridge loan to give it ‘breathing space’ while it continued to negotiate.

But Dutch finance minister Jeroen Dijsselbloem, who heads up the Eurozone’s finance minister group, put it pretty bluntly on Friday: ‘We don’t do bridge loans.’

Tsipras’ administration has already begun rolling back austerity measures implemented as part of the EU bailout since the left-wing Syriza party won power two weeks ago. Its policies include rehiring public sector workers that were allegedly ‘fired illegally’, raising the minimum wage and clamping down on tax evasion, with 'tackling the humanitarian crisis' its top priority. But it won’t be able to afford any of that unless it gets a new deal on its debts.

Former US Federal Reserve chairman Alan Greenspan added his voice to the maelstrom on Sunday, predicting Greece would ‘eventually leave’ the Euro. ‘It is just a matter of time before everyone recognises that parting is the best strategy,’ he told the BBC. And with no agreement in sight, that possibility is looking increasingly probable.

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