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Greece to hold new elections in June, markets tank

Greece is headed for another month of political paralysis ahead of new elections in mid-June, after party leaders on Tuesday failed to reach an agreement to build a coalition government.

world Updated: May 15, 2012 23:42 IST

Greece is headed for another month of political paralysis ahead of new elections in mid-June, after party leaders on Tuesday failed to reach an agreement to build a coalition government.

The protracted deadlock and the prospect of an anti-austerity party winning the new vote hammered Europe's markets on fears that the debt-crippled country could be forced out of the European single currency, triggering shockwaves throughout the 17-country eurozone.

"The country is unfortunately heading again to elections," Socialist party leader and former finance minister Evangelos Venizelos said after the talks under President Karolos Papoulias collapsed.

"It is heading back to elections in a few days under very bad circumstances, because certain people coldly put their short-term party interests above the national interest."

Main European markets lost earlier gains, with the FTSE 100 index of leading shares shedding 0.6%, Germany's DAX down 1% and the CAC-40 in France 0.7%. Greek shares were clobbered further after days of heavy losses, with the Athens stock market initially diving 4.86%, to close 3.6 %down.

The euro also fell, trading 0.3% lower at $1.2794.

Tuesday's meeting of five party leaders under Papoulias was a last-ditch effort to overcome the deadlock after a first election in May left no party with enough votes for a majority in parliament.

Repeated attempts over nine days to cobble together a coalition government proved fruitless, as anti-austerity parties riding on a tide of popular discontent at protracted cutbacks failed to co-operate with mainstream pro-European politicians.

The political uncertainty has worried Greece's international creditors, who have extended the country billions of euros in rescue loans over the past two years.