Greek chaos drags markets down
Riots and uncertainty as bailout row reaches boiling point on streets
Published 16/06/2011 | 05:00
CHAOTIC scenes on the streets in Athens were mirrored in the markets yesterday as the latest Greek crisis caused the euro to plunge and drove down bonds and shares across Europe.
Greece is due to receive a €12bn rescue loan under its bailout deal in July, but only if the country can pass tough new austerity and privatisation measures.
Last night, tens of thousands of protesters took to the streets in opposition to a fresh round of budget cuts. There were violent clashes with police.
Inside parliament the extent of the crisis became clear when Greek prime minister George Papandreou offered to resign in order to get a bailout agreed.
He is reported to have said he would step down if it helped get agreement on the cuts and led to a national unity government.
It came after he lost support within his own ruling party as well as the outright hostility of opposition parties.
The prime minister said he would go if all opposition parties agreed to the cuts required under the bailout, according to sources on the ground.
In the markets, shares and bonds fell worldwide. The situation has shattered investor confidence that a second Greek bailout was all but agreed.
The Greek politicians were clashing after the European Commission insisted opposition parties sign up to a new austerity plan in return for a second bailout programme.
The government agreed the new €110bn deal with the EU and IMF last May. The terms include €28.3bn of savings between now and 2015.
Opposition parties want to throw out the deal and renegotiate the terms.
"To entertain the illusion that there is a substantially different alternative to this programme is not correct and there should be explicit endorsement by the opposition," said one EU official yesterday.
In Ireland and in Portugal, opposition parties were involved in talks before bailouts were fully agreed.
There is now no agreement in Greece on accepting the bailout and no agreement in Europe about how to move ahead with the loans.
An emergency meeting of eurozone finance ministers broke up on Tuesday without agreement on how to hit private sector lenders to Greece with some of the cost of the bailout.
Germany is among the countries that wants to see lenders wait years to be repaid if taxpayers are to shoulder a new, bigger Greek burden.
The European Central Bank said that could make the debt crisis worse. A second emergency meeting is due to be held on Sunday.
The French and German heads of government are meeting today to discuss the crisis.
A decision on the bondholder issue could be on hold until July, however, after the 'Financial Times' reported that the IMF could release funds to Greece even without agreement from Europe on new loans. That would take some of the pressure out of the latest crisis, and shows how close to breaking point the IMF thinks the situation could get.
Bank shares in Paris fell yesterday after ratings agency Moody's warned it could downgrade the rating of major French banks Credit Agricole, BNP Paribas and Societe Generale because of their exposure to Greek debt.
Irish, Greek and Portuguese bond yields hit record highs. The cost of borrowing on 10-year Greek bonds ended up close to 18pc. The cost to insure Greek debt climbed to a record, indicating a roughly 75pc chance of default within five years.