International markets delivered a crushing blow to the government’s ambitious plans for an early exit from the bailout and, after months of calm, the country has found itself once again in the in the eye of a financial storm. 

The writing appeared to be on the wall when the main stock index receded by 9.8% on October 15, following another drop of 5.7% the previous day-which means the country’s stock market has dropped to its lowest level in 14 months. Yields on Greece's 10-year bonds also saw a sharp rise to 7.71%, indicating that  investors fear a looming default and a government collapse by early next year. The downfall continued today with further 2,22% in losses for the stockmarket (closing at 869 points) and the bond yield rising further, to 8,9%.

The market reaction has also compromised Prime Minister Samaras’ gamble to win back support for his struggling coalition government, which is increasingly beginning to look like a lame duck. Analysts say that the staggering rise in yields has been a ‘reality check’ for the government which was planning to forgo €12 billion in the IMF bailout. 

Samaras was planning an early exit from the bailout a year ahead of schedule, in a bid to stem the rising tide of discontent among the country’s disillusioned electorate and with a very big possibility of elections next March.  Last Friday, he had pledged not to renew a bailout package from the the European Comission and the European Central Bank that expires at the end of the year and announced that Greece was ready to part ways with the IMF, by the end of the year.

But the reaction of international markets is seen as the clearest indication yet that Greece is not ready to go it alone without a lifeline from international lenders and that its economy is still too fragile. “Greece still needs intensive care,” according to financial writer Mark Gilbert of the Bloomberg financial agency. “Being hooked up to beeping machines in hospital is no fun, so it's understandable Greece wants to discharge itself from the supervision that came with  €240 billion ($307 billion) transfusion of emergency aid in 2010. The bond market, however, is saying Greece still needs intensive care,” Gilbert said. .

Greece could face early elections in February if parliament fails to elect a new President. Syriza has pledged to turn down any candidate the coalition might propose, in order to force snap general elections, as the constitution provides. 180 votes are needed in the 300-seat parliament to elect a president. The coalition government has 154 lawmakers and it is highly unlikely it will garner enough votes and avoid elections which it will most likely lose after recent polls have been consistent that anti-bailout party and main opposition Syriza has widened its lead.

“If latest market developments scupper Samaras plan for early bailout exit, he loses main tool for securing a win in the presidential vote,”  said Nikos Malkoutzis, a political analyst and editor of the Macropolis blog which likened  the fall in stocks and bonds to ‘hammering’.

Samaras’s almost unilateral stance has shown what some eurozone officials have described as a disconnect between the government and international markets and lenders.

According  to quotes from EU officials’ carried  by the Reuters news agency on October 15, it may now be  be reconsidering its options.

“There is recognition on the Greek side that a total cut-off from the euro zone and the IMF programmes is not in their best interest,” one euro zone official told Reuters.
However, Reuters said the government officials have dismissed reports that it is having second thoughts about exiting the bailout. The agency quoted a senior government official on October 15 who denied the claims.

“This is not true. We reiterated our plan today. We outlined the same targets and a timeframe which we have already announced, following the same steady course: in agreement with our lenders and with persistence on reforms,” the official  told Reuters.

As the country struggles with yet another crisis, European Commission vice-President Jyrki Katainen issued a statement of support.

“There should be no doubt that Europe will continue to assist Greece in whatever way is necessary to ensure reasonable financing conditions for the Greek state and to smooth the path back to full and sustainable market access”. But this might  prove too little, too late for a government seemingly teetering on the brink of default.