European shares were called to open lower on Monday, with Greece looking almost certain to be headed for fresh elections as the far left Syriza party rejected further negotiations to form a coalition government.
The UK’s FTSE was called 50 points lower at the open, while the German DAX looked set to open 72 points lower and the French CAC 33 points lower.
Elsewhere, German Chancellor Angela Merklel saw her Christian Democrats suffer a defeaton Sunday in an election in Germany's most populous state, a result that could embolden the left opposition to step up attacks on her European austerity policies.
Greece's radical leftist leader, Alexis Tsipras, spurned an invitation from the president for a final round of coalition talks on Monday, all but ensuring a new election that he is poised to win.
President Karolos Papoulias must call a new election if he cannot persuade political leaders to compromise. After a day of fruitless negotiations on Sunday, he invited politicians from the biggest three parties to return to the presidential mansion on Monday, along with a small leftist group.
But an official from the Syriza party said its 37-year-old leader Tsipras would not attend. The anti-bailout vote was divided among small parties in the first election but has now rallied behind Tsipras.
Polls have begun to show that if elections are now repeated he would win a majority, a prize that comes with a bonus of 50 extra seats in the 300-seat parliament. A victory for Syriza would also increase the likelihood of Greece’s exit from the single currency.
In Germany, Merkel's conservatives were beaten in local elections in North Rhine Westphalia, Germany’s most populous state, by the center-left Social Democrats (SPD) who took 38.9 percent of the vote and will have enough to form a stable majority with the Greens. Merkel's Christian Democrats saw their support plunge to just 26.3 percent, down from nearly 35 percent in 2010, and their worst result in the state since World War Two.
The election result comes just one day before France's new president, Socialist Francois Hollande, is due to visit Berlin shortly after he is sworn in on Tuesday to press Merkel to shift away from austerity.
In Spain, thousands of protestors took to the streetsover the weekend, converging on Madrid’s city square, Puerta del Sol, to mark the one-year anniversary of the anti-austerity ”ndignados” demonstrations. Protestors set up makeshift camps in squares around the Spanish capital, leading to clashes with police and the arrests of 18 people. Protestors have promised to take to the streets again on Monday, while police have vowed they will not allow a repeat of last year’s month-long protests.
Spain will likely pay high premiums to sell short-term debt on Monday, after the government's latest attempt to fix the banking sector failed to allay concerns about the burden of a cleanup of the country's finances. Spain's 10-year benchmark yield hit a six-month high on Thursday after the government announced it would partially nationalize one of the country's largest retail banks, Bankia, after days of anxiety over the lender.
Italy will also sell 3-year bonds on Monday after a solid auction last week, in a new test of demand for lower-rated euro zone debt among investors concerned over the scale of the euro zone crisis.
Asian shares eased on Monday as investors saw more reasons to cut risk after news of the German election result and Greece’s impending fresh election filtered through.
MSCI's broadest index of Asia-Pacific shares outside Japan edged down 0.1 percent, after shedding more than 1 percent on Friday to its lowest in nearly four months and posting its biggest weekly loss since late November. Japan's Nikkei share average opened up 0.4 percent.
Elsewhere,China acted to support its fragile growth after its central bank cut the amount of cash that banks must hold as reserves on Saturday, freeing an estimated 400 billion yuan ($63.5 billion) for lending to head-off the risk of a sudden slowdown in the world's second-largest economy.
Meanwhile, fallout from the $2 billion trading loss announced by JPMorgan last week continued over the weekend, with three executives involved with the failed hedging strategy expected to leave the bank this week, sources close to the matter told Reuters on Sunday.
The company is expected to accept the resignation of Ina Drew, its chief investment officer and one of its highest-paid executives, in the next few days, the sources said. Two of Drew's subordinates who were involved with the trades, Achilles Macris and Javier Martin-Artajo, are expected to be asked to leave, they said.
And Yahoo will have to replace its chief executivefor the third time in as many years after Scott Thompson stepped down on Sunday. Thompson’s resignation comes 10 days after hedge fund manager and board member Daniel Loeb accused him of padding his biography by faking a computer science degree. Loeb’s Third Point hedge fund will now take three seats on the Yahoo board putting him in a dominant position within the struggling internet firm.