Political uncertainty over Greece’s proposed exit from its international bailout programme hammered the Athens stock market on Tuesday.
The main index slumped 5.7 percent.
At the same time the cost of borrowing for the Greek government rose; the amount of interest that had to be offered on bonds maturing in 10 years was up above 7.0 percent for the first time since March.
Also playing into investors fears was the risk of a snap election early next year, which the main opposition party would likely win; it advocates a significant writedown of Greece’s debt.
Discussions have been going on between Greece and its eurozone partners about on a new line of credit with the European Stability Mechanism, a source told Reuters earlier in the week.
Germany’s Handelsblatt newspaper earlier quoted German government sources saying a precautionary credit could help ensure Athens stuck to a programme of economic reforms prescribed by the EU in return for a bailout of public debt.
The Athens government is in negotiation with EU institutions and the International Monetary Fund ahead of the expiry of its bailout package with the European Union on Dec. 31. Greece has said it wants its bailout to finish when EU funding stops, though the IMF is scheduled to stay through to early 2016.
An exit from supervision by the widely resented international “troika” of lenders — the European Commission, European Central Bank and International Monetary Fund — would be popular with voters.
Eurozone ministers meeting in Luxembourg on Monday warned that, despite improvements, the Greek economy remains fragile.
Separately, Eurogroup chairman, Dutch Finance Minister Jeroen Dijsselbloem, said any credit extended to Greece after a bailout exit would also be conditional on economic reforms.
The Greek government has been keen to avoid further detailed conditions for reform, which have been deeply unpopular.
Dijsselbloem told reporters it was premature to speak of a precautionary line of credit before a review of Athens’ reform efforts by the troika was complete.
There was consensus in the Eurogroup of finance ministers that any Greek exit should be “sustainable”, he said.
The disclosure in late 2009 that Greece had cheated on its figures to conceal a massive budget deficit triggered a rolling crisis that nearly tore Europe’s monetary union apart.
