The stock market in Athens dropped as much as 11 percent to a two-year low, before regaining some of its losses and closing down 3.91 percent. At the same time, investors pushed up the yields on Greek 10-year government bonds to more than 9 percent.
The upward pressure on yields was, however, not limited to Greek bonds alone, as heavily indebted euro zone governments, such as Italy and Spain, were also affected, with investors rushing into safe haven assets such as German debt. Yields on 10-year bonds for Germany fell to a historic low of 0.552 percent before rising slightly.
But despite political uncertainty in Greece, Europe's main stock markets closed higher with London's benchmark FTSE 100 index gaining 0.36 percent to 6,633.51 points. While Frankfurt's DAX 30 ended the day with a modest increase of 0.05 percent to 9,927.13 points, the CAC 40 in Paris rose 0.51 percent to 4,317.93 points.
Nevertheless, there are concerns that Greece's anti-austerity left-wing opposition party Syriza, if it wins the election due to take place in early 2015, might roll back some of the reforms the country implemented over the past couple of years in return for funds from international creditors and to put its economy back on track. Opinion polls point out that Syriza maintains a narrow but steady lead.
And should a new government go back on reforms, the country might face difficulties financing itself as its access to credit from its international lenders would be hampered, and Greece is still not in a position to tap financial markets for credit.
The country, which nearly went bankrupt in 2010, has been kept afloat by the bailout money offered by the EU and the IMF. But their lending conditions mandating drastic austerity measures have fueled resentment among the Greek public, who are reeling under high unemployment and deteriorating living standards. Against this backdrop, support for anti-austerity parties, such as Syriza, has been growing.
The euro, however, has gained ground, rising to $1.2207 compared with $1.2179 late Friday in New York.
sri / sgb (AFP, AP, Reuters)