ATHENS -- Greek shares suffered one of their worst hammerings in decades Tuesday, on concerns the country is heading for a political crisis that could jeopardize its vital bailout program.
The Athens benchmark index was down 10.4 per cent in afternoon trading, putting it on course to suffer the biggest one-day drop since 1987. Bonds also suffered, with the 10-year yield rising 0.49 percentage points to 7.63 per cent, a sign of investor wariness.
The sell-off comes after conservative-led government brought forward the date of a presidential vote that, if inconclusive, will lead to general elections.
Investors fear the main left-wing opposition party, Syriza, which is leading in the polls, might win the general election. Syriza has said it will demand a substantial cut to what Greece owes in bailout loans.
Although it has softened past rhetoric, it hasn't clarified whether it would resort to unilateral action, a move that would lighten Greece's debt burden but could have other painful repercussions. It might, for example, spook international investors away from lending money to the country for years, hurting its ability to get back on its feet financially even as the economy improves. Some suggested it could cause the country to fall out of the euro union.
Analyst Holger Schmieding at Berenberg Bank said nobody knows what Syriza would do in power. "Would they really implement their wild proposals and go down in history as the party that killed the incipient recovery and crashed Greece out of the euro?" Schmieding said. "That uncertainty would weigh heavily on markets."
Schmieding said that since the financial crisis the eurozone is now much better equipped to handle a Greek "accident." It has a bailout fund to backstop cash-strapped governments and the European Central Bank has committed to buy the bonds of troubled countries, if needed. That could help keep the trouble in Greece from hurting confidence in other countries.
Greece's president is a figurehead with minimal political clout. But the election requires a super-majority that would include backing by some lawmakers from the overall hostile opposition, which appears beyond the reach of the struggling governing coalition. If three successive votes, from Dec. 17-29, prove fruitless, general elections must be called by early February -- nearly a year-and-a-half ahead of schedule.
In a televised address Tuesday, Prime Minister Antonis Samaras nominated Stavros Dimas, a senior figure in his conservative party and former EU commissioner for the environment, as the government's presidential candidate.
All opposition parties said they would not back him, or any candidate the government puts forth, to force national elections.
Syriza leader Alexis Tsipras said the final presidential vote, on Dec. 29, would signify the end of the governing coalition's "catastrophic" austerity policies.
"At last, this year we will have every reason to wish a happy New Year," he said. Syriza is steadily leading polls, though without enough support to govern alone.
Greece has been relying on 240 billion euros ($294 billion) in loans from the European Union and International Monetary Fund since 2010.
The bulk of the loans program -- from the EU -- runs out this year, although European finance ministers on Monday gave Greece a two-month extension. That will allow the conclusion of tough negotiations over whether Athens should impose more belt-tightening to qualify for the last aid installment.
Just after the extension was announced, the Greek government said it was bringing forward the date of the presidential election by about two months, to strengthen the country's negotiating position and avoid protracted uncertainty.
David McHugh in Frankfurt, Germany, contributed to this report.
