Greek markets under pressure but no panic as debt talks kick off

Nervous investors sold off Greek financial assets on Monday, but stocks held above pre-election levels and borrowing costs below last week’s peaks as expectations of a new debt deal between Athens and its eurozone partners persisted.

The euro also edged up on bets the currency bloc’s finance ministers can find common ground at talks that began at 1400 GMT.

The main Athens stock index fell around 4 percent to 860.25 points, holding above levels of around 840 before the Jan. 25 election. On Friday, it rose to a two-month high of 912.85 points on anticipation of a debt deal.

Greece’s short-term borrowing costs were up more than a percentage point on the day but some 4.5 points below their highest levels since the country’s 2012 default.

That suggesting that investors, though nervous, were not panicking.

“There is an underlying view that there has to be a resolution (to the debt standoff), not least because Greece apparently has little or no bargaining power,” said John Bilton, head of the global multi-asset strategy team at J.P. Morgan Asset Management.

French Finance Minister Michel Sapin hinted at a slight easing of euro zone opposition to Greek requests for an end to austerity and a new debt deal, saying Europe must respect the political change in Athens. On arrival in Brussels, he urged the Greeks to extend their current deal to allow time for talks.

But German Finance Minister Wolfgang Schaeuble said he was pessimistic about finding a solution. His Greek counterpart Yanis Varoufakis said his government was not asking for a way out of repaying the country’s debt, but wanted a few months of financial stability.

The stakes are certainly high.

With Greece’s current bailout due to expire on Feb 28, the European Central Bank might soon have little choice but to halt emergency funding for Greek banks – a move that could see Athens barrel out of the currency bloc.

“I’m not too worried for now. I don’t think that Germany can afford to let Greece leave the eurozone, and the Greeks themselves will have to compromise a little bit. So I think we’ll reach a halfway-house compromise,” said Clairinvest fund manager Ion-Marc Valahu.

Economists surveyed by Reuters last week gave a one-in-four chance of Greece leaving the currency area in 2015. This was the highest probability collated in Reuters polls – even those taken during the depths of the debt crisis in 2011-2012.

Ten-year Greek bond yields rose 37 basis points to 9.88 percent, just above a two-week low hit on Friday, while yields on other low-rated debt were steady.

“Even though (Greece) …has been dominating newspaper headlines of late, causing many Cassandras to come forward and forecast the worst, financial-market investors have been looking decidedly relaxed,” said DZ Bank analyst Christian Lenk.

The focus of investor concerns remains deposit outflows from Greek banks. The Athens Stock Exchange FTSE Banks Index dropped 11.2 percent on Monday, with the ECB set to review the limits on the emergency assistance it approves for those banks on Wednesday.