Markets drop as Greece heads for another election

Markets slid on the news today that coalition government talks in Greece have failed after nine days of discussions, meaning the country is heading for another election next month.

The worry in the markets is that the next round may lead to the triumph of parties that want to scrap the country's bailout agreements with international creditors, which would put Greece's membership of the euro into jeopardy. The left-wing Syriza party, which came second in the vote on 6 May, has said the draconian terms of Greece's financial rescue agreements should be scrapped or rewritten.

Any faint hope that the parties would come to an agreement were dashed when Evangelos Venizelos, the leader of the PASOK socialist party said the talks had failed and another election would be held.

Having enjoyed some support early in the session, stocks in Europe were falling again, particularly in Athens, where the main exchange was down another 4.6 per cent.

Among Europe's main markets, the FTSE 100 index of leading shares was down 0.4 per cent at 5,443 while Germany's DAX fell 1 per cent to 3,389. The CAC-40 in France was 0.5 per cent lower at 3,044. The euro also fell, trading 0.3 per cent lower at $1.2794.

Wall Street opened steadily, helped by a strong manufacturing survey for the New York region and upbeat retail sales figures for April — the Dow Jones industrial average up 0.1 percent at 12,708 and the broader S&P 500 index the same rate higher at 1,340.

The focus over the coming weeks will likely centre on Greece. With opinion polls showing increasing support for Syriza, analysts expect a showdown between whatever new government comes to power in Greece and the country's bailout rescuers.

Earlier, stocks in Europe had been buoyed by the surprise news that eurozone economy did not fall into recession in the first quarter of the year. Output was flat compared with the previous three-month period, better than the 0.2 per cent drop that analysts had been expecting. A drop would have put the eurozone technically back into recession, which is defined as two consecutive quarters of economic contraction.

"In the current context, zero growth in the eurozone in the first quarter is relatively good news," said Marie Diron, senior economic adviser at Ernst & Young. "It suggests that the economy is not falling off a cliff under the burden of fiscal austerity."

Asian markets fell earlier today, with Japan's Nikkei 225 down 0.8 per cent to 8,900.74, its lowest close since 3 February. South Korea's Kospi lost 0.8 per cent to 1,898.96. Australia's S&P/ASX 200 lost 0.7 per cent to 4,266.30.