Greek crisis batters markets worldwide

Agencies | | Updated on: Dec 06, 2021
bl30_Greece bailout

bl30_Greece bailout

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BL30_01_GREECE_BAILOUT

Athens shuts banks, calls for referendum on bailout plan

Global stock markets took a hammering on Monday after Greece shuttered its banks for the week and imposed limits on cash withdrawals reinforcing fears the country is headed for a messy exit from the euro with repercussions for the world economy.

Stocks fell across Asia and Europe, where Germany’s main index was down 2.5 per cent and the market in Athens remained closed for the week. Wall Street also opened down while the euro fell sharply as did oil prices.

Investors are fretting about the uncertainty posed by the events in Greece. Though many experts say the global economy, including even Europe, is in a better shape to withstand a potential Greek exit from the euro, some point out that its implications are not fully clear.

Greece’s crisis escalated over the weekend after Prime Minister Alexis Tsipras said the country will hold a referendum on a bailout plan proposed last week by the country’s creditors.

Referendum proposal In response to the referendum proposal, Greece’s Euro Zone partners refused to extend the country’s bailout programme, which expires on June 30, and the European Central Bank capped its emergency support for the country’s banks.

That prompted the Greek government to announce limits on money withdrawals and transfers. Daily cash withdrawals are capped at €60 ($67) per account.

“The images of queues at ATMs in Greece are stripping traders of what little confidence they have left in the nation, and the financial earthquake that happened in the Euro Zone over the weekend can be felt around the world,” said David Madden, market analyst at IG.

“Of all the market sell-offs we have witnessed due to Greece this one is the worst in years, and traders who thought a Greek exit wasn’t on the cards are quickly reassessing their point of view,” he added.

The CAC-40 stock index in France was down 3 per cent at 4,908 while Germany’s DAX fell 2.5 per cent to 11,198. The FTSE 100 index of leading British shares was 1.4 per cent lower at 6,657. Investors are worried that should Greece leave the euro and write off its debts, which stand at more than €300 billion, the global economic recovery could be derailed and questions would grow over the long-term viability of the euro currency itself.

Addressing delegates at an event to mark 70 years of the founding of the Christian Democratic Union, German Chancellor Angela Merkel stressed that Europe needs the ability to compromise, warning if the “euro fails, Europe fails”.

If the “capability to find compromises is lost, then Europe is lost”, she said, but insisted that Europe's principles “need to be fought for”, otherwise it could see its image diminished. Merkel thanked her Finance Minister Wolfgang Schaeuble for his efforts “day and night” to find compromises.

Some say doubts could grow over which country might drop out next from the currency union should it ever get into financial trouble like Greece.

On Monday, there were indications that those fears had not grown much, with government bond yields in relatively weak European economies like Italy’s rising only slightly.

That’s an indication investors do not view Italy’s debt as much riskier, despite the events in Greece.

Few think a Greek euro exit would trigger a collapse similar to the one prompted by the demise of US investment bank Lehman Brothers, which in 2008 triggered the worst phase of the global financial crisis. The repercussions are uncertain, however. No country has ever left a currency union as big as the euro before.

Key day today Greece remained the focus of attention throughout the day as the country is due to repay on Tuesday €1.6 billion to the International Monetary Fund. Tuesday is also an important day as it marks the end of the country’s bailout programme.

Without an extension or new deal, Greece will not have access to the €7.2 billion remaining in its bailout fund and will face the prospect of defaulting on all its future debt, not just the imminent IMF one.

The first markets to trade in the wake of the weekend developments were those in Asia and they set the tone.

Among the main markets there, the Nikkei 225 stock average in Tokyo slid 2.9 per cent to 20,109.95 while the Shanghai Composite Index fell 3.3 per cent to 4,053.03 despite China’s surprise weekend interest rate cut.

Hong Kong’s Hang Seng fell 2.6 per cent to 25,966.98 and Sydney’s S&P/ASX 200 was off 2.2 per cent at 5,422.50.

Published on June 29, 2015
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