Global markets hit a pocket of turbulence Wednesday as a year-old European bailout for Greece appeared to be unraveling, with deep and unpopular budget cuts triggering protests in Athens and threatening to topple the Greek government in a chain of events that investors fear will end in a globally destabilizing default on the nation’s debt obligations.
The Dow Jones industrial average was down more than 200 points at times in trading during a topsy-turvy day of Wall Street teetering in response to Europe’s woes.
The euro and European markets plummeted after leaders of the European Union and International Monetary Fund in intensive meetings with Greek leaders came no closer to agreement on further aid and a recovery plan for the struggling Mediterranean nation.
Thousands of protesters surrounded the parliament building, and riots broke out in Athens in response to a new round of austerity measures sought by the EU and IMF. George Papandreou, Greece’s socialist prime minister, at one point offered his resignation in a bid to quell growing opposition to the harsh measures, and said he would try to form a new government Sunday.
The Dow, having recovered some earlier this week from a rough spell induced in part by Greece’s woes, capitulated Wednesday and ended the tumultuous day down 179 points at 11,897.
Major stock indexes from Frankfurt to New York lost from 1.25 percent to 1.75 percent of their value.
With European markets plunging anew into turmoil, investors seeking safe havens sent the U.S. dollar and Treasury bonds soaring, despite the economic and debt woes also plaguing the United States.
“The Greece situation continues to deteriorate,” said stock market commentator Ned Brines, noting that global markets are reverberating as they did a year ago when Greece’s financial straits led to months of market turmoil and the first IMF bailout of a Western European country. “History may not repeat, but it certainly rhymes.”
Adding to Wednesday’s market turbulence, Moody’s Investor Service warned that it might downgrade three major French banks with large holdings of Greek debt.
Deep divisions have emerged in Europe over whether to sanction a default or restructuring of Athens’ debt as the price of additional aid.
Germany — the European nation shouldering the largest share of the bailout burden — argues that banks and other bondholders should be forced to sacrifice just like taxpayers.
But the powerful European Central Bank, which as part of the bailout is backing much of Greece’s debt, has stridently opposed any involuntary “haircut” imposed on investors.
The standoff has led to fear and uncertainty in financial markets that Greece will be forced into an uncontrolled and potentially devastating default as it is unable to roll over its massive debts at interest rates hovering around 20 percent.
“If a compromise cannot be reached, there is a chance that the second rescue effort disintegrates, leaving Greece at the mercy of the bond markets,” said Karl Schamotta, market strategist at Western Union Business Solutions. “One suspects that policymakers will avoid such a dire outcome, but the uncertainty is weighing” on markets.View Entire Story
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