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Greece ratchets up the tension

Published Thursday, January 29th, 2015

Global stock indices suffered further losses yesterday as the war of words between the eurozone’s dominant economy and the bloc’s problem child escalated. Greece’s new government struck a defiant tone as it held its first cabinet meeting and promptly announced the scrapping of a planned privatisation which had been agreed as part of its bailout. Along with promises of radical change being repeated by the country’s new leader, the finance minister threw down the gauntlet to its international creditors by claiming that it would not capitulate in its demands for a renegotiation of its debt. Greek stocks extended their downward slide, dragging their European counterparts lower, and saw its short-dated bond yields surge to levels last seen during the 2012 Greek debt restructuring.

Germany did nothing to calm the situation by reiterating that Greece will be obliged to stick to the existing terms agreed with its creditors and had little option to do otherwise. Comments from the country’s economy minister made their position clear after he hinted that a Grexit would be undesireable but not impossible. These moves ratcheted up eurozone political uncertainty and yields on Italian and Spanish debt inched higher on fears that turmoil in Greece would not be contained. Meanwhile, the likelihood of common ground being found with Europe’s newest government were dealt a further blow after Alex Tispras repeated his opposition to Russian sanctions just as the EU were expected to extend existing punitive measures until the end of this year. Don’t dismiss the possibility of Greece turning to Russia for a bail-out.

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Posted by Stephen Brennock

Stephen Brennock joined PVM in 2013 after having worked as a project manager for a business development firm. He graduated with a degree in Business Management in 2007.