Stock markets and euro slide on Greek debt fears

• Lenders threaten to pull plug on further bailouts • Finance minister promises reforms and cost-cutting Europe’s failure to resolve its spiralling debt crisis saw stock markets and the euro fall sharply on Monday amid fears that Greece, the country at the centre of the drama, was veering towards default. Investors watched closely as a crucial teleconference between the Greek finance minister and Athens’ international creditors got under way tonight in a desperate bid by the cash-strapped nation to secure more funds to keep afloat. European stock markets were down heavily with the FTSE 100 in London closing down more than 100 points at 5259. The Dow Jones industrial average was down more than 200 points in afternoon trading amid warnings from the US treasury secretary, Tim Geithner, that the euro crisis was affecting American business confidence. The oil price fell $2.20 to $85.76 in New York, while the euro dropped at one point as low as $1.3586, approaching last week’s seven-month low of $1.3495. At stake for Greece is an €8bn (£7bn) rescue loan – the sixth instalment of a €110bn package that Greece received in May 2010 – and a second bailout worth €109bn that the European Union, European Central Bank (ECB) and International Monetary Fund (IMF) also approved to prop up an economy viewed as insolvent. Before the start of the two-hour talks, the finance minister, Evangelos Venizelos, had emphasised that he would stress Greece’s commitment to meeting its debt obligations. He attempted to douse anger over Athens’ failure to implement long-overdue reforms by insisting that the socialist government would faithfully implement cost-cutting policies prescribed by the country’s “troika” of lenders, the EU, ECB and IMF. “If we don’t make such changes now we will have to make them later in circumstances that will be possibly uncontrollable and much worse,” Venizelos told the conference attended by IMF officials in Athens. With lenders threatening to block further aid, a barrage of further austerity measures were to be the focus of the televised talks, according to Greek media. Venizelos described the conference call as “a productive and substantive discussion”, saying “tomorrow morning, the teams of technical experts in Athens will further elaborate on some data and the conference call will be repeated tomorrow at the same time”. International inspectors, who abruptly suspended a visit to Athens three weeks ago in frustration over the emergence of budget shortfalls, had made clear that they will not return until they are convinced that the government is intent on pursuing reforms in return for aid. Without implementation of measures that include the privatization of state assets and deregulation of the labour market, EU officials believe neither Greece’s economy nor culture will ever change. The budget deficit originally projected at 7.4% for this year is now expected to be nearer 10%.Under unprecedented pressure during a meeting of EU finance ministers in Poland at the weekend, the beleaguered government agreed to fast-track reforms – outlined in a contentious ‘mid-term fiscal plan’ passed by the Athens parliament amid fierce protests in July – to make up for the gaping €2bn budget black hole. “Every time we give them something, they give up,” complained one EU observer following Greece’s fiscal progress. “Nothing has been done to implement the reform programme passed in July, which is why the economy is now in such difficulty.” Measures required to reduce the public deficit to a sustainable level will now almost certainly include mass layoffs in the 700,000-strong public sector, closure of inefficient state-owned entities, cutting pay and pensions and extra taxes on heating and diesel oil. Once reclaimed from the public sector – long exploited for political patronage in a society reared on grace and favours – resources will be released into Greece’s under-developed private sector to help boost lagging levels of competitiveness. “The ball is in the Greek court. Implementation is of the essence,” Bob Traa, the IMF’s permanent representative in Athens, told the conference. Some 50,000 civil servants will likely be placed in a special “labour reserve” with lower pay in the coming weeks with double that number laid off by 2015 if the policies are enforced as creditors want. The spectre of more austerity – after two years of continuous price rises, wage cuts, pension drops and tax increases – has been described by many Greeks as a tipping point that will almost certainly unleash further social unrest. The country’s powerful unions reacted last week to the news of a surprise new property tax – perhaps the most unpopular measure to date – by promising to take to the streets. “The measures will be much harder to pass now than they were two months ago,” political analyst Kostas Panagopoulos said. “The government now has to do what it hasn’t done [yet] in record time and people are not only frustrated, they are increasingly desperate. There will be unrest. We are closer to a social revolution in Greece than ever before.” European debt crisis European banks Greece Europe Stock markets IMF Economics Global economy Helena Smith guardian.co.uk

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