The failure of Greek Prime Minister Samaras to secure sufficient votes in the third and final parliamentary attempt to select a new president has sparked a sell-off in European stocks and peripheral bonds. Up until now, the contagion from Greece has been remarkably limited.  Perhaps it is the thin holiday markets that is exaggerating the knock-on effects.  At the same time, the fear that the Greek election will morph a Greek exit from monetary union is palpable.

Greek President Papoulias has up to ten days to set an election date. It must be 21-30 days from the announcement. By tradition, the election is held on Sunday. That makes January 25 or February 1 the most likely. The latest polls show the anti-austerity Syriza with a small lead, but it has been narrowing slightly in recent weeks.

The other operative force is that the extension of the previous assistance program from the Troika was extended for two months expires at the end of February.  It does not give the new government very much leeway. By the end of March, Greek government guarantees (~30 bln euros) will no longer be accepted by the ECB as collateral for new loans.  

If Syriza's challenge is to be turned back, it does not appear that Samaras can do it. Samaras has too much baggage–made too many enemies–over his career in Greek politics. If Samaras steps down as head of the New Democracy and a new candidate is (such as Dora Bakoyannis), we suspect that there were be an immediate impact in the polls.  

Greece's 10-year benchmark yield has risen nearly 100 bp today. Italian and Spanish benchmarks yields are 10-11 bp higher, while the safe haven German bund yield is at new record lows (below 57 bp). Greece's equity markets are off 8-9% today, with financials off more than 12%. 

The euro itself relatively subdued. It could not the push toward $1.2220, but it has held above last week's low near $1.2165.  The selling of Greek assets does not necessitate the selling of euros, but clearly the political development is not a supportive factor.