Greek snap general election triggered as parliament fails to agree president

Greece's parliament will be dissolved within days and the country will hold a snap election on 25 January, Prime Minister Antonis Samaras has announced, after his party failed to win a key presidential vote.

Anti-austerity party Syriza are currently leading in the opinion polls, renewing fears over the fate of the eurozone and the timeline and structure of the mooted monetary stimulus by the European Central Bank.

"We expect increased market volatility given the higher uncertainty about the potential election outcome and the policy stance of the new government, especially since Syriza has never been in government," Barclays analysts said in a note on Monday afternoon.

Samaras fell 12 votes short of the 180 needed to elect his chosen candidate Stavros Dimas in Monday's third and final parliamentary poll to choose a new president.

According to Greece's constitution, the failure of the ruling coalition to accumulate the required number of votes means a general election must be called for late January or early February, not long before the expiry of the country’s €240bn bailout from the European Union and International Monetary Fund.

The emergence of the poll result at around 11:30 CET saw the Athens stock market's main composite index down 10.6% and the German bund yield fall to an all-time low, with a 10-year bond sliding to below 0.57%. After roughly an hour, Greek 10-year sovereign bond yields were 67 basis points higher at 8.63%.

A likely win for ultra-leftists Syriza, who have pledged to renegotiate the bailout and roll over the debt, is feared by the rest of Europe.

"Tough luck," said Berenberg analyst Holger Schmieding in a quickly published note on Monday. "Greece will have snap elections in 4-6 weeks.

"While centre-right prime minister Samaras still has a fighting chance to win, the odds favour the ultra-left Syriza. If that anti-troika group wins the vote, they may wish within a month or two that they had never triggered and won this elections. Because they would be facing extremely tough choices, to put it mildly."

The constitution requires parliament to be dissolved within 10 days and snap general elections to be held within 30 days.

"Although this is a specific issue for Greece it will raise fresh fears over the fate of the eurozone and the timelines for the possible implementation of a European version of QE," added IG analyst Alastair McCaig.

"2015 could see an escalation in the debate over austerity, with the same old north-south divide on what is proportional still raging."

The fear of a Syriza win led Samaras to state on Saturday that a general election could “throw Greece into turmoil".

But while investors are still worried about the risk of contagion, particularly to Spain and Italy, most analysts view the risks as being much lower than they were a few years ago.

Craig Erlam of Alpari UK said: "Taking into consideration the worst case scenario in which Syriza win a majority in the elections and are unable to come to an agreement with Greece’s lenders leading to an exit from the currency union, this would not be as catastrophic an event as it would a few years ago, thanks to the work done in the interim."

While he acknowledged that the Greek election would call into question whether the ECB will go ahead with its broad-based quantitative easing program, which it has been rumoured is being drawn up for the January meeting, Erlam stressed that "this is not 2012".

He said: "While Syriza does have some leverage in that it’s in everyone’s best interest that Greece regains access to capital markets, not to mention the fact that Greece is not the only country in which anti-austerity parties have gained significant support as seen in the European elections, they are far from being in a position to dictate matters and an exit from the eurozone would cause the country far more pain than any other outcome."