Greece, a country that accounts for less than 2 percent of the euro-area economy, is dominating investor sentiment to a degree not seen in four years.

Shares tracked by the Euro Stoxx 50 Index and Greek benchmark ASE Index are moving in unison by the most since July 2011, correlation data compiled by Bloomberg show. Europe’s equities jumped 5.8 percent in four days on optimism that Greek concessions would seal a bailout, then fell on Wednesday as creditors rejected the proposals.

“Greece is holding the market in chains,” said Teis Knuthsen, chief investment officer at Saxo Bank A/S’s private-banking unit in Hellerup, Denmark. “This would otherwise be a party for European stocks.”

The Greek impasse is holding back investors who may otherwise be weighing prospects for an economic revival and earnings growth. Instead, they are dealing with the most volatile stock market on record compared with the U.S.

David Fuller's view

I imagine that you are even more tired of hearing about this than I am of commenting on it.  However, like it or not, Greece is the dominant topic in European markets and it also has a wider reach.  Meanwhile, there are two other relevant points here:

1) The IMF, EU negotiators and Greek politicians are desperate to keep this beleaguered country within the single currency.  However, the tortuous struggle in an attempt to find mutually acceptable terms confirms, lest anyone is still in doubt, what an impractical and uneconomical decision this is.  Moreover, this episode is only the latest in a long list of similar political decisions within the EU, which have impeded the region’s GDP growth for over 20 years. 

2) Meanwhile, Mario Draghi’s QE is a very favourable tailwind, waiting to boost European stock market prices, should the EU manage to emerge intact from this Scylla and Charybdis.