Shares and euro fall on prospect of Greek euro exit as ministers meet to solve bailout impasse
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UPDATED:
10:55 GMT, 14 May 2012
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On guard: Greek presidential guards march in front of the Maximou presidential mansion in Athens as leaders of Greece's top three political parties discuss a coalition to agree on austerity measures.
European markets have fallen today ahead of a meeting of eurozone finance ministers, with political impasse in Greece over austerity measures raising fears the country may have to leave the euro.
Additional financial buffers for Greece are likely to be on the agenda at the meeting of finance ministers from the 17 single-currency nations in Brussels this afternoon.
The added uncertainty has pushed financial markets lower today. The FTSE 100 opened 0.8 per cent lower and has drifted further. It is currently 102.77 points, or 1.85 per cent, off at 5,472.62.
UK banks suffered with Royal Bank of Scotland down 4.97 per cent, Barclays down 5.38 per cent, Lloyds Banking Group down 5.45 per cent and HSBC down 2 per cent.
The German DAX index was 137.21. or 2.1 per cent, lower at 6,444.03, while the French CAC40 was 76.49, or 2.4 per cent, lower at 3,052.95.
The euro fell again and remains at its lowest level versus the pound in 42 month, at €1.2487.
And there were signs of stress in other indebted eurozone nations. An auction of Spanish debt saw the interest rate on the country's 10-year bonds hit a 2012 high of 6.218 per cent.
Greece is having to implement tough austerity measures as a condition to accessing €130billion of emergency funding from the European Union and International Monetary Fund.
No to bailout: Head of Greece's Left Coalition party Alexis Tsipras (middle) leaves the presidential palace after a meeting in Athens yesterday
But following an election in the country last week, no clear majority emerged and representatives have spent the time since trying to cobble together a coalition that can implement austerity measures and avoid new elections.
Such a deal looked far off last night after the leader of radical left-wing, anti-bailout party Syriza, which finished second in the election earlier this month, refused to sign up to a grand coalition.
Alexis Tsipras said it would be ‘criminal’ for Greece to stick to the terms of the bailout, adding: ‘Syriza won’t betray the Greek people.’
Support for parties who want to tear up the terms of an EU bailout is growing by the day.
David Jones, chief market strategist,
IG Index, said: 'Two days of back-and-forth negotiations in Athens
produced much heat but little light, and the world woke up on Monday
morning to yet another day without a Greek government.
'New elections in June now look like a
certainty, and the possibility of a Greek exit from the eurozone is
being openly discussed in the corridors of power in Europe.'
Vince Cable warned yesterday of a ‘massive impact’ on Britain if Greece crashed out of the euro and debt contagion spread.
The Business Secretary admitted there was little the UK could do to influence an unfolding disaster in the eurozone.
It came after former chancellor Alistair Darling warned that foreign aid would have to be sent to starving Greeks if the country left the single currency and lost its bailout money.
City analyst David Buik said: ‘If Greece leaves the euro, a drachma devalued by say 30 per cent in 18 months gives the economy half a chance. Holidays and exports will be cheap.’
Warning: Former Chancellor of the Exchequer Alistair Darling has said that Greek exit from the eurozone could be catastrophic
But Labour’s former Chancellor Alistair Darling warned that a Greek exit from the euro could be catastrophic.
The country would run out of money in about six weeks if bailout cash was withdrawn, leaving it unable to pay pensions or public sector salaries.
‘Anyone who thinks that Greece leaving the euro is the easy fix is kidding themselves,’ Mr Darling said.
‘Europe would almost certainly have to give it financial aid, simply to stop people going hungry.
‘As for a planned exit, does anyone seriously think that over a weekend, say, you could print drachmas ready for issue on Monday morning – in the meantime preventing money draining out of the country and preventing panic as people realise that their savings had vanished
‘What would be the effect on other countries, the ones people feared would be next in line'