The FTSE/ATHEX Banks Index was up 27% this week, while the 10 year government bond yield dropped by about 30bp, approaching 3%.
The surge was remarkable because it came at a time of jitters in European markets: around trade tensions between the US and China, Brexit uncertainty, and — perhaps most relevant to Greece — signs of a new clash between Italy’s Matteo Salvini and the EU. It would be strange for Greece to be completely immune to Italian contagion.
Prime minister Alexis Tsipras was the bane of investors when his far-left party took power in 2015, promising to oppose bail-out conditions. Fast-forward four years and the once-radical party of Yanis Varoufakis has turned market friendly. Greece’s primary budget surplus was 3.7% of GDP last year, foreign direct investment is up, and like any good neoliberal Tsipras told the Financial Times recently that more investor-friendly reforms were still needed. Government bond yields have tumbled downwards. The sovereign is back in the bond markets.
So it is puzzling that markets reacted so positively to what appears to be the end of Syriza’s days in power. New Democracy is so far ahead in the polls that it will almost undoubtedly win the next election, now likely in early July and anyway by October. But it will have to go some way to justify the surge in asset prices, given how it is inheriting an improving economy from what turned out to be, against all expectations, a decidedly pro-market Syriza.