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European shares under heavy pressure from Greek electoral deadlock

posted 14 May 2012, 05:59 by Mpelembe   [ updated 14 May 2012, 05:59 ]

European shares under heavy pressure, analyst says, as worries mount that Greek political parties will be unable to form a coalition, deepening the eurozone crisis.

PARIS, FRANCE (MAY 14, 2012) (REUTERS) - Shares across Europe opened down on Monday (May 14) and traded sharply lower, hit by fears that Greece's failure to form a government could deepen the euro zone crisis and signs that China was struggling to shore up its economy.

By midmorning, the CAC 40 index of leading French shares was trading around 2.37 percent down. Stocks were down over two percent in Frankfurt, and were showing losses of just over 1.85 percent in London.

Euro zone banks fell more than three percent after Greek political leaders failed in their latest efforts to form a ruling coalition, sending the common currency to a four-month low.

The market tension has lead to increased speculation that Greece could be forced to make an exit from the euro zone, according to asset manager with KBL Richelieu in Paris, Dominique Dequidt.

"We now see that the difficulties in forming a government in Greece could lead to new elections in Greece in June. And we know that there are refinancing deadlines for the deficit reduction plan and deadlines for European payment of funds to Greece so deadlines which in the short term are important for Greece. We expect them to be refinanced. So the June elections will impact on the risk of Greece leaving the euro," Dequidt said.

This morning, Spanish bond yields were at their highest level in two weeks, he added.

Adding to the negative tone, German Chancellor Angela Merkel's conservatives suffered a crushing defeat on Sunday in an election in Germany's most populous state, a result that could embolden the leftist opposition to step up attacks on her European austerity policies.