Global markets roil amid chaos sparked by Greek euro question

Reuters and AFP

LONDON/HONG KONG–Chaos over Greece’s role in the eurozone swept financial markets on Thursday with early losses in stocks and the euro turning to gains on hopes Athens might ditch its referendum plans. The threat of a Greek exit from the euro hung over a meeting of G-20 leaders after France and Germany made it clear that Athens must decide urgently whether it wants to stay in the currency bloc. Greek Prime Minister George Papandreou was under the gun, losing support within his own party, after calling for a referendum that will test his highly-indebted country’s resolve to stay in the currency bloc. Speculation was rising that there would be an election rather than a referendum. “People are thinking Papandreou’s government falls and therefore the referendum is postponed, but it’s obviously wishful thinking because it doesn’t fix any issues,” said one trader at a European investment bank. For investors, the referendum has raised the specter of a disorderly default on Greek debt with the real threat being a spillover into other countries, notably Italy. “There is massive uncertainty. Is Greece going to come out of the euro?” said Andrea Williams, who manages US$2.1 billion in assets for Royal London Asset Management. “We are trying to avoid exposure to domestic Europe. We were concerned about European growth anyway, but now it is going to be absolutely dreadful. We are trying to avoid anything with over-exposure to Italy and Spain.” World stocks as measured by MSCI were flat after earlier being sharply lower. Emerging markets fell 1 percent. In Europe, the FTSEurofirst 300 lost 1 percent initially but later stood close to 1 percent higher.

The renewed Greek crisis, beginning only days after a supposedly comprehensive European Union agreement to fix the debt problem, has brought a gradually improving investment climate to a sudden halt. U.S. Fed Chairman Ben Bernanke sought to soothe market tensions on Wednesday, promising to do more if necessary to boost the U.S. economy. Attention was also on the European Central Bank (ECB) meeting later on Thursday, the first under new ECB President Mario Draghi. Regional Markets Asian markets fell on renewed fears for the eurozone after Greece was dealt an ultimatum over its plan to hold a referendum on last week’s deal to tackle the region’s debt crisis. Hong Kong tumbled 2.49 percent, or 491.21 points, to 19,242.50, Sydney ended off 0.30 percent, losing 12.7 points, to 4,171.9 and Seoul shed 1.48 percent, or 28.05 points, to 1,869.96. Tokyo was closed for a public holiday. Shanghai was 0.16 percent, or 3.98 points, higher at 2,508.09 by the close. “Sentiment has improved as Beijing appears to have moved away from tightening towards selective easing,” Zhang Yuheng, an analyst at Capital-Care Securities, told Dow Jones Newswires.