European woes weigh on markets

Stocks across Europe declined on Tuesday, May 26th, as fears from Greece’s ongoing debt crisis continued to weigh on markets, while signs of opposition to austerity were beginning to mount in Spain. 

Over the long weekend, the Spanish local election showed the current governing Popular Party (PP) suffer heavy losses that could open the door to an anti-austerity coalition. Although the conservative PP won the most votes overall (27 per cent) it lost control in eight of Spain’s 13 regions, which the party attributed to voter disaffection over austerity policies.

Meanwhile, Spain’s anti-austerity Podemos movement and the centre-right Ciudadanos entered the running, turning elections into a four-way race in Spain. Many experts likened the situation to that which led up to the current Greek anti-austerity government, and sent the euro into decline.

“Across the Mediterranean, there have been heavy losses by Spain’s ruling Popular Party to anti-austerity parties in regional and local elections, “ said Kit Juckes, chief currency strategist at French bank Société Générale, and added that “the euro is much weaker”.

The single currency fell around 0.2 per cent in the aftermath of the Spanish elections, and declined to a one-month low versus the dollar below the $1.09 mark. 

Meanwhile, the euro also continues to be impacted by the debt crisis in Greece, where uncertainty mounts over the nation’s ability to meet its next payment to the International Monetary Fund (IMF). Greece needs to reach a deal with its European creditors in order to secure further bailout funds that would allow it to keep up with its financing. However, the government remains resolute on certain anti-austerity issues.

Greek prime minister Alexis Tsipras threatened to default on the next €1.6 billion payment it owes the IMF, as he announced that his government would not accept a “humiliating” agreement. As a result, the euro’s decline against the dollar deepened. 

“Whether Greek prime minister Tsipras can negotiate a deal that is acceptable to enough MPs of his party isn’t clear and markets are once again, very edgy,” noted Kit Juckes. 

Finance minister for Greece, Yanis Varoufakis, insisted that the negotiation deadlock is the result of Greece’s creditors insistence on further austerity, which he believes would “impede recovery, obstruct growth, and worsen the debt-deflationary cycle”.

Writing in a blog post, he explained that: “Fair-minded observers of the four-month-long negotiations between Greece and its creditors cannot avoid a simple conclusion: The major sticking point, the only deal-breaker, is the creditors’ insistence on even more austerity, even at the expense of the reform agenda that our government is eager to pursue.”

The next IMF repayment date is June 5th, but Bloomberg analysts noted that missing this deadline would probably not count as an official default. Greece would likely have a month before facing serious consequences.