Memories of the global financial crisis reemerged last night as the Greek stock market plunged 12.8 per cent with investors worrying about political instability triggered by an early vote for the presidency.
The fall was larger than any one day decline during the debt crisis and was only topped by the 1987 market crash.
A vote by 300 members of parliament to replace current President Karolos Papoulias was due in February but a first round has now been set for December 17 after a surprise decision by Prime Minister Antonis Samaras.
Further rounds will be on December 22 and 27.
The election is a key test for embattled Prime Minister Samaras, who would be forced to call snap general elections if his candidate – former European Union Environment Commissioner Stavros Dimas – fails to garner enough support.
The Prime Minister said he had brought forward the election to clear “clouds of political instability in Greece and political uncertainty over Greece abroad”.
He added that Mr Dimas, 73, is “respected by the international community” and his election would enable Greece to “officially enter the post-bailout era”.
But news of the early vote sent stocks plunging, with losses accelerating after Mr Dimas was formally named as the government’s candidate.
Investors are concerned that the rising popularity of the radical left party Syriza could see Mr Dimas defeated and Syriza win the resulting general election.
Syriza rejects much of the austerity imposed on Greece under a European Union-International Monetary fund bailout recently extended to the end of December.
Were the bailout to be withdrawn international investors would face large loses on their Greek stocks and bonds.
China’s Shanghai Composite Index plunged 5.4 per cent on Tuesday on fears the Beijing government regulatory changes will act as borrowing curbs.
Wall Street managed to shake off the steep sell-offs, paring losses toward the close as investors held fast in their optimism about the US economic recovery.
The Dow Jones Industrial Average closed just 0.3 per cent lower at 17,801 and the S&P 500 ended almost flat at 2,060.
In Europe the news was bad with the Eurostoxx index dropping 2.5 per cent and London’s FTSE 100 index losing 2.1 per cent.
Latin America was gloomy with the Argentine market down 7.22 per cent on concerns about recent oil price weakness.
However oil prices recovered a little ground overnight helping some energy stocks, like Chevron, to recover slightly, adding 0.2 per cent.
The Australian dollar was buying 82.83 US cents this morning and iron ore eased slightly to $US69.40 a tonne.
The spot gold price benefitted from the rise in volatility – it closed up $US26.96 at $US1,229.67 an ounce overnight.