Fears that Greece might be unable to honour its financial obligations triggered another wave of losses across world markets last night.
The worries resurfaced as international lenders demanded Athens make deeper austerity cuts in order to receive a key €8bn (£7bn) loan.
Investors were also disappointed by the recent meeting of European finance ministers, which failed to produce concrete plans for stemming the eurozone's sovereign debt crisis. Adding to the nerves, Angela Merkel's German coalition government suffered another regional electoral defeat over the weekend, with the result fuelling concern about domestic opposition to the country's role in European bailouts.
The key worry, however, was whether or not Greece would be able to secure the €8bn in rescue funds that it needs to avoid defaulting on its debts next month. The troika of international lenders from the EU, the IMF and the European Central Bank wants the country to make swingeing cuts to its public sector and improve its tax intake in order to secure the loan. Greece has already signalled that, without the funds, it will run out of cash next month.
The two sides – the troika and Greece – attempted to hammer out an agreement in an evening conference call that the Greek Finance Ministry said could continue into the early hours of today. But investors were in no mood to wait, driving the FTSE 100 down by 2 per cent and the German stock market down by 2.5 per cent ahead of the talks.
The Spanish and Portuguese markets were also down by more than 2 per cent. Italy slumped by more than 3 per cent amid fears of contagion if Greece is unable to stave of a default, while, on the other side of the Atlantic, the Dow Jones Industrial average was down by 2 per cent in early trading.
The lenders were said to want Greece to implement 15 austerity measures to secure the latest tranche of aid, including cutting another 20,000 workers from the public sector payroll and implementing further reductions or freezes in salaries.Reuse content