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StockBeat: Greek Markets Surge, Italy's Wobble After EU Election

Published 28/05/2019, 09:36
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By Geoffrey Smith

Investing.com -- As the dust settles from elections to the European parliament at the weekend, it becomes clear that the biggest winner has been – Greece.

The Athens General Composite index rose nearly 6% on Monday while Greek government 10-year bonds yields – a rough barometer of political risk – fell to their lowest since the country joined the euro zone in 2002.

The ATG is now up 26% in 2019 to date, and less than 1% off the high for the year that it hit in April. Even so, it’s still down more than two-thirds from its peak before the debt crisis exploded in 2010.

The move came after radical leftist Prime Minister Alexis Tsipras suffered a crushing defeat at the hands of the center-right New Democracy party of Kyriakos Mitsotakis. Tsipras responded by moving up to June national elections that were scheduled for October. That move was seen by analysts as an attempt to forestall four months of drifts that could have led to an even worse defeat.

A year ago, Greece’s 10-year bonds yielded 6.10%. Today they yield only 3.17%. That’s only 47 basis points more than Italy's, which have risen from 2.20% to 2.70% in the same timeframe.

That’s because Greece has been the mirror image of Italy politically. While Greece has given up its revolt against Eurozone budget discipline, Italy – under the populist coalition of Matteo Salvini’s Lega party and Luigi di Maio’s 5 Stars Movement - has declared war on it.

“If we need to break some limits, like the 3% or the 130-140%, we’ll go ahead,” Salvini said while campaigning, in a reference to Eurozone rules that limit budget deficits to 3% of GDP. Italy’s gross public debt is already 132% of GDP, a level that is unlikely to be sustainable if Eurozone interest rates ever rise again. The European Commission recently forecast Italy’s budget gap would hit 3.5% of GDP next year, putting Rome and Brussels clearly on a collision course.

No coincidence, then, that Italy’s FTSE MIB has been the worst performing index in Europe since Sunday, losing 1.1% by 4.30 AM ET (0830 GMT) on Tuesday, while the benchmark Euro Stoxx 600 was down only 0.4%.

U.K. markets reopened mixed after a three-day weekend, the FTSE 100 edging down by less than 0.1%. Germany’s Dax was down 0.6%.

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