Stocks suffer again as Greece default looms

Markets in Europe suffered another tough morning on Tuesday (June 30th) as Greece looked likely to default on its debts to the International Monetary Fund (IMF).

The euro was also dragged lower as markets braced for the country to miss a €1.6 billion payment that will mean it loses €7.2 billion in bailout funds.

A referendum due July 5th, in which Greeks will be asked to vote on proposed bailout terms, is being seen as a make or break moment for the country’s membership of the euro. Greece’s prime minister Alexis Tsipras has urged voters to reject the deal.

London’s FTSE 100 shed more than one per cent, handing back nearly all of 2015’s gains as investors sought shelter from the potential fallout from Greece, despite figures showing the UK’s economy grew more than previously thought last year.

Germany’s DAX was down more than one per cent, while France’s CAC 40 gave up another 1.5 per cent, after European markets had already suffered their largest single-day losses since 2011 on Monday.

Earlier, Asian stocks had held up fairly well, with equities in Japan and Hong Kong rising overnight, despite large losses for US markets on Monday. The Dow Jones plunged nearly two per cent, while the S&P 500 gave up this year’s gains as it also dropped two per cent.

The euro shed 0.75 per cent versus the dollar but was a little above Monday’s four-week low and analysts note the single currency remains pretty steady overall. EUR/GBP remained near its lowest in more than seven years. Sterling was steady against the buck as the US dollar index rose 0.4 per cent.

So far investors have reacted cautiously to the developments in Greece and the threat of contagion remains low, at least until the outcome of the referendum.

"For the other countries in Europe, it would be a problem but not a drama if Greece left, it wouldn't be an economic upheaval all of a sudden," French finance minister Michel Sapin said in a television interview, according to Reuters.

Italian prime minister Matteo Renzi said the referendum was a straight vote on the euro versus the drachma.