Greek uncertainty hurts investor sentiment
Following abortive attempts to form a coalition government in Greece, another round of elections is scheduled for 17 June. However, many investors fear the elections will not result in a government that is willing to implement unpopular austerity measures. This would place Greece’s emergency funding in jeopardy, as the country appears increasingly unlikely to be able to adhere to key criteria. The European Financial Stability Facility withheld €1bn (£805bn) of its latest instalment of bailout funds for Greece.
In response to rumours the environment of instability could lead to a “run” on Greek banks, the central bank “adamantly” refuted a press report suggesting there were plans afoot to restrict deposit withdrawals. To compound the eurozone’s woes, conjecture over Greece’s future has intensified speculation over the outlook for other troubled eurozone member nations, including Spain. Over the month as a whole, the Athens Composite index plummeted by almost 25% while Spain’s Ibex index fell 13.1%. In Germany, the DAX index fell 7.3%.
In the UK, meanwhile, the Bank of England has confirmed that it is forming contingency plans in case Greece should leave the euro. In other developments, revised figures from the Office for National Statistics showed the UK’s recession is slightly deeper than had been previously thought. The economy contracted by 0.3% rather than 0.2% during the first three months of 2012. During May, the FTSE 100 index fell 7.3%.
The effects of the eurozone’s crisis continued to reverberate around the world and Asian equity indices suffered during May. In Japan, the Nikkei 225 index fell 10.3% during the month although the country’s economy did expand at an annualised rate of 4.1% during the first quarter of 2012, boosted by government spending and improved private consumption.
At the G8 summit in the US, President Obama urged European leaders to make growth and jobs their top priority. For its part, the US economy expanded at a slower pace during the first quarter of 2012 than first estimated, growing at an annualised rate of 1.9% instead of the 2.2% previously calculated. The benchmark Dow Jones Industrial Average index fell 6.2% during May.
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