World Markets Roiled by New Greek Default Fears

Posted October 3rd, 2011 at 1:40 pm (UTC-5)
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World stock markets fell sharply Monday because of new fears that Greece might soon default on its bailout loans from last year.

Hong Kong's Hang Seng exchange dropped more than 4 percent. The London, Paris and Frankfurt markets all slid, as did U.S. stock indexes. Investors moved to sell stocks after the Athens government said Sunday it would not meet its deficit targets either this year or next, and the country's economy would continue to shrink in 2012.

Top financial officials from the 17 European nations that use the euro met in Luxembourg Monday to discuss Greece. But they were not immediately expected to decide whether to give the country a new $11 billion segment from its 2010 bailout so it has enough money to avoid a default later this month.

Inspectors from the European Union, the International Monetary Fund and the European Central Bank are still in Athens examining the country's austerity plans.

Greece says its economy will shrink 5.5 percent this year and another 2.5 percent in 2012, making it difficult to meet the government's deficit targets as its tax revenues decline. The government projected its deficit at 8.5 percent of the country's economic output this year, well above the 7.6 percent target it had previously agreed to with its international creditors.

A Greek default could have serious consequences for the EU and overseas economies, and heighten worries among investors on world exchanges.

Greece has imposed a series of austerity measures, cutting spending and increasing taxes, efforts that have led to repeated worker strikes. Workers are weary of the new measures that have eliminated government jobs and cost them more money.

The government's 2012 budget, presented to Parliament on Monday, calls for the eventual elimination of 30,000 government jobs, either through retirement of workers or their firing by the end of next year.

Aside from worries about Greece, European officials face a slowing economy on the continent. One report Monday showed that the pace of manufacturing in the eurozone fell in September to its lowest point in 25 months.