European stocks haunted by spectre of Greek default

LONDON: European equities sank Thursday, mirroring sharp losses elsewhere, as worries intensified over a potential Greek default that could trigger devastating financial shockwaves across the world, dealers said.

London's benchmark FTSE 100 index of top shares slid 1.22 percent to 5,795.60 points in midday trade, with sentiment also hit by news that British retail sales unexpectedly slumped in May.

Frankfurt's DAX 30 shed 0.84 percent to 7,055.64 points and in Paris the CAC 40 index lost 1.04 percent to 3,766.78. The Stoxx 50 index of leading eurozone companies recoiled 0.79 percent to 2,710.03 points.

"The clock is counting down. The financial markets are worried about a disorderly Greek debt default," said VTB Capital economist Neil MacKinnon.

"The risk of a 'Lehman Moment' for the eurozone is increasing," he added, in reference to US bank Lehman Brothers, which collapsed in September 2008 and sparked a financial crisis which dragged the world economy into recession.

The EU executive on Thursday urged European decision-makers to put aside differences "at this critical juncture" and agree on a package for a second bailout of Greece by July 11.

As debt-stricken Athens faced trouble on the street and in government, Economic Affairs Commissioner Olli Rehn said he was confident the 17 eurozone finance ministers would agree at meetings Sunday and Monday on the disbursement of the latest slice of Greece's 110-billion-euro ($155 billion) bailout loan.

He added: "I call on all EU decision-makers, and more particularly the finance ministers of the euro area next Sunday, to overcome the remaining differences and come to a responsible agreement at this critical juncture."

At the talks the ministers would also discuss the terms of a second bailout for Greece "with a view to taking decisions at the next Eurogroup meeting of July 11".

The fast-moving crisis has meanwhile pushed the European single currency to a three-week low at $1.4090.

Athens had warned Wednesday it would be unable to pay next month's bills without a 12-billion-euro loan installment from the EU-IMF bailout agreed last year.

But the creditors have warned that no more aid will be forthcoming without firm reform commitments from Athens. A second package to ensure Greece's medium-term finances is also needed to keep IMF loans flowing.

There are also fears that Greece's problems could spread throughout the financial system and lead to another credit crunch.

"Some in the markets are likening the Greece crisis to the collapse of Lehman Brothers in 2008," added research director Kathleen Brooks at trading site Forex.com.

"Back then, the US authorities' allowed the investment bank to go to the wall causing panic in the markets and a global credit crunch.

"Although Greece is a tiny economy on global standards it has the same power to unleash destruction."

Wall Street fell sharply on Wednesday, more than wiping out the prior day's gains as investors worried about weak data and Greece's escalating woes.

Asian stock markets also tumbled on Thursday as the eurozone crisis came back to the fore with Greece on the brink of defaulting on its loans.

Tokyo slumped 1.70 percent, Hong Kong fell 1.75 percent, Sydney shed 1.91 percent and Shanghai fell 1.52 percent.

Copyright AFP (Agence France-Presse), 2011