European stock markets fell sharply Monday as traders voiced new concerns about political uncertainty in Greece and whether it could become the first country to drop out of the 17-nation euro currency union.
Stock indexes in London, Paris and Frankfurt all dropped about two percent, while major exchanges in New York were down one percent.
The value of the euro currency also fell below $1.29 for the first time in nearly four months.
One European market analyst, Theodore Krintas, said the inability of Greek political leaders to form a new government and the uncertainty of whether they will adhere to an austerity program to cut the country's deficit is leading to turmoil on financial markets.
“I believe that the markets would like the country to vote or actually to take on a new vision, a viable vision for the next 10 to 15 years. Markets are very comfortable with discounting the next 10 to 15 years and very, very uncomfortable with uncertainty and what we are feeding the markets, what Greece is feeding the markets the past one-and-a-half years now is uncertainty and uncertainty only.”
European leaders pressured Greece to adhere to terms of the agreement they reached earlier this year calling for sharp social spending cuts, higher taxes, and elimination of government jobs in exchange for approving the second international bailout for the country in the last two years.
European ministers gathering in Brussels for talks sent stern messages to Athens. Spanish Foreign Minister Jose Manuel Garcia-Margallo said Greece's continued role in the eurozone depended on it “complying with the rules of the game.”
The German finance ministry said the “only and right” position for Greece is to adhere to its pledge on austerity measures.
There was also more bad economic news for Italy Monday. The Moody's agency cut the credit ratings of 26 Italian banks, saying the banks are now among the lowest-rated among advanced European countries.
Moody's said Italy has slipped back into recession and that the banks carry what it calls problem loans. It also says the banks are subject to lower profits.
