29th June 2015
Markets across Europe sank on Monday June 29th as investors sought shelter from the deepening Greek debt crisis.
The country’s government imposed capital controls and closed banks after the European Central Bank (ECB) chose not to extend emergency funding.
European indices followed Asian equities lower overnight, with Germany’s Dax plunging more than three per cent and the UK’s FTSE 100 shedding 1.7 per cent. France’s CAC lost 3.4 per cent amid the turmoil.
Chinese shares had earlier lost three per cent, meaning they have lost 25 per cent of their value in just two weeks. Japan’s Nikkei 225 lost nearly three per cent and the Hang Seng in Hong Kong was similarly reduced.
The euro was sharply lower as investors sought safe haven assets. The single currency retreated to its lowest level in more than seven years against the pound, while EUR/USD dropped below the 1.10 handle for the fist time in four weeks before paring some losses.
There were also clear signs of worries in sovereign debt markets. Yields on Italian, Spanish and Greek government bonds climbed. In contrast, the yield on German bonds fell.
Investors are worried about what a default would mean whether a Grexit would spark a meltdown in Europe.
Laura Lambie, senior investment director at Investec Wealth and Investment, told the BBC: "The big question is whether we're going to get contagion from Greece to Portugal to Italy, to some of the weaker economies around Europe."
However, analysts stress that the situation is not the same as when the financial crisis was sparked by the collapse of Lehman Bros in 2008.
European banks have divested themselves of Greek debt and increased capital, Mark Zandi, chief economist at Moody's Analytics, explained to AP.
"A Greek default and exit from the eurozone would be devastating to Greece's economy, but no one else's," said Zandi. "So, the Greek standoff will be disconcerting to financial markets, but only temporarily."
Greeks will vote on bailout terms on July 5th, but a €1.6 billion payment to the International Monetary Fund is due tomorrow (June 30th).
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