October 3, 2011

Shares down as fears grow for Greece default

by Kay Mitchell

European stock markets have fallen sharply today over concerns that crisis-torn Greece will not meet its deficit target this year.

The country showed a deficit of 8.5% of gross domestic product for this year – missing targets of 7.6%.

London’s FTSE lost just over 2%, while Germany’s Dax and France’s CAC both lost around 2.5% and these followed earlier falls in Asia with Hong Kong’s main index down 5%.

The falls come after the European Union, the International Monetary Fund (IMF) and the European Central Bank (ECB) were locked in talks in Athens this week to decide whether the country is eligible to receive its next bailout instalment, which it needs to avoid going bankrupt next month.

Bankruptcy would put immense pressure on the euro zone and could have a serious knock-on effect on the global economy.

Greece’s economy is expected to contract by 5.5% this year – much worse than the 3.8% estimate in May – the country blamed this for its failure to meet its deficit targets.

Finance minister of the euro zone are scheduled meet today in Luxembourg where they will discuss Greece’s progress with regard to its finances.

There was other disappointing news form the euro zone today after it emerged that manufacturing in the region contracted at the quickest pace in two years last month.

Markit’s PMI fell to 48.5 in September from August’s reading of 49 – meaning the index is below the crucial 50 level.

Manufacturing activity in Greece contracted for the 25th consecutive month, Markit said, while powerhouse Germany, also saw activity grind to a halt.

Greece has introduced harsh austerity measures to reduce its budget deficit but this has led to several strikes and protests – some which have been violent.

The measures have also impacted negatively on growth and the economy is likely to shrink further, according to analysts.

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