Greek bond yields spike as Syriza scraps austerity

After just three days in power, the new left-wing government in Greece has been ripping up the rule book on austerity and is plowing on with its radical policies -- whether investors and political leaders like it or not

The yield on Greek 10-year bonds rose above 11 percent on Thursday, after the government said it was freezing a planned sale of some of its shares in Greece's biggest refinery, Hellenic Petroleum, and any further sale of the Public Power Corporation of Greece.

"Enough with the fragmentation and the privatization," new Energy Minister Panagiotis Lafazanis, who represents the far-left faction within Syriza, said Wednesday.

Syriza leader Alexis Tsipras
Louisa Gouliamaki | AFP | Getty Images
Syriza leader Alexis Tsipras

It comes after Theodoros Dritsa, the new alternate shipping minister, said on Tuesday he would "put an end to the sell-off" of the lucrative Port of Piraeus. One of the world's biggest shipping groups, China's Cosco, had been shortlisted as a potential buyer of the 67 percent government stake that was up for sale.

"I do not see why the new government raises this banner of resistance for a review, as they call it, of this investment," former shipping minister Miltiades Varvitsiotis, who was key in sealing the Cosco deal, told CNBC in an email.

Under Prime Minister Alexis Tsipras, the Syriza-led government has wasted no time in taking on the previous government's policies, halting the privatization deals that were a condition of Greece's 240 billion euro ($270 billion) bailout program.

Germany's response to the move was unequivocal, with Economy Minister Sigmar Gabriel telling a news conference Wednesday that Athens should have discussed the halt to privatizations with its international lenders beforehand.

'Someone will lose big'

Greece has received two bailouts worth a total of 240 billion euros ($295 billion) since the height of its financial crisis in 2010. These loans came in exchange for strict austerity measures and were overseen by the so-called troika of international organizations – Greece's fellow euro countries, European Central Bank and the International Monetary Fund.

However Tsipras and his Syriza party have said they want to repeal austerity measures, rehire public sector workers that were laid-off as part of earlier cost-cutting measures and -- problematically for Europe -- get Greece's lenders to write off a third of Greece's debt.

Read MoreIs Greece about to cosy up to Russia?

Greece appears to be firmly on a collision course with its euro zone neighbors over its bailout program. So far, Europe has refused to countenance demands from Greece for a debt haircut, and one economist said it was unclear how the impasse would be resolved.

"I think the Greece versus EU/troika is a no-solution trade, but someone needs to lose face, someone needs to give up," Steen Jakobsen, chief economist at Danish investment bank Saxo Bank, told CNBC Thursday.

"I don't think it's going to be the Greeks…The first couple of days have clearly shown that Syriza is going to deliver what they promised to voters. I think there's no solution here. Someone will lose, and someone will lose big."

Investors take fright

Since Syriza came to power, the Athens stock exchange has fallen 12.7 percent. On Wednesday, Greek bank stocks tumbled more than 25 percent, although they were trading higher on Thursday morning.

The yield on Greece's 10-year government bonds was at 11.132 percent at 10.30 a.m. GMT.

Meanwhile, ratings agency Standard and Poor's cut its outlook on Greek sovereign debt to negative from stable.

Jakobsen warned that he did not believe a compromise was possible.

"Either Greece needs a (debt) haircut or Greece needs to leave the EU, there are no two ways about it. I don't think a compromise between the two is possible," he said.

Read MoreNew Greek finance minister: First goal to 'end the vicious cycle'

Meanwhile, President of the European Parliament Martin Schulz said on Wednesday that if Tsipras engages in a "positive agenda" then Europe will be "on his side."

"If the newly formed Syriza government will be a government of 'no to everything', then Tsipras' momentum might be short-lived," he wrote in an article published on LinkedIn.

- By CNBC's Holly Ellyatt and Nefeli Agkyridou