World Markets Tumble on Greek Default Fears

Posted September 12th, 2011 at 11:02 am (UTC-5)
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World stock markets and the value of the euro plunged Monday as investors worried that Greece would not be able to pay back its bailout loans.

European shares hit their lowest point in more than two years, with exchanges in London, Paris and Frankfurt all falling sharply. German Economy Minister Philipp Roesler said Europe could no longer dismiss the possibility of an “orderly default” by Greece, although other German officials said they do not want Athens to leave the 17-nation bloc that uses the common euro currency.

The president of the European Central Bank, Jean-Claude Trichet, said Europeans are calling on Greece to “fully deliver on its commitments.”

Analysts view the possible Greek default as a watershed moment for the stability of the euro, which has been falling in value against both the Japanese yen and the U.S. dollar.

The fear is that if Greece defaults, it could lead to further problems in containing the continent’s debt contagion, especially in Italy and Spain, the eurozone’s third and fourth largest economies. A default could also pose significant problems for French banks holding large amounts of Greek debt.

The value of European bank stocks have been dropping sharply in recent trading sessions, as investors worry that the banks may soon lose vast sums on their investments in Greek debt and that financial services firms will cut their credit ratings. German government officials in particular have been meeting to draft plans to shore up the German banking sector in the event of a Greek collapse.

Bloomberg News reported that European bank stocks are now valued at their cheapest level since the late-2008 collapse of the American investment bank Lehman Brothers that helped spawn the worldwide global recession.

Markets in Asia were down sharply Monday, with the key Hong Kong index off more than four percent. European exchanges opened lower and kept on falling. U.S. stocks were also lower in early trading.

Signs that European policymakers are divided on how to deal with Greece’s financial woes sent the euro to seven-month lows against the dollar Monday.

Oil prices fell by more than $2 a barrel because of concerns about Europe’s debt crisis and slowing global economic growth.