Greek default fears drive markets lower

European markets are once again at the mercy of the ongoing Greek debt saga on Monday June 15th, after talks between the heavily indebted nation and its creditors collapsed on Sunday.

Germany’s DAX was more than 1.4 per cent lower, the French CAC 40 declined by nearly 1.1 per cent and the Euro Stoxx 50 was almost 1.3 per cent in negative territory. Meanwhile, the FTSE-100 shed around 0.8 per cent.

The Greek stock market also suffered on the news, as it fell more than six per cent to its lowest levels seen since April, dragged lower by slumps in bank shares.

Greece’s existing bailout programme runs out on June 30th and it needs to reach an agreement with its creditors to unlock a further €7.2 billion of outstanding loans, which have been frozen for months. However, on Sunday talks broke up after less than an hour, which fuelled speculation that Athens will be unable to repay the €1.8 billion it owes the International Monetary Fund by the end of the month.

“[Greece’s] deadline is approaching fast and the Eurogroup meeting on Thursday is broadly seen as the last chance for Greece to reach an agreement that will unlock the remaining €7.2 billion,” said Peter Rosenstreich, head of market strategy, at Swissquote. 

“We expect markets will feel the heat this week as the odds of a Greek default have increased considerably.” 

The euro was also hit by the rising uncertainty in the single market. Against the dollar, the euro declined some 0.3 per cent and one-month volatility rose to a three-and-a-half year high. However, the single currency pared its losses come midday.

"We believe the market is underpricing the risks of increased volatility. We continue to recommend staying short euro/dollar," Barclays explained in a note.

The Greek debt saga is widely expected to rule financial markets in Europe for the coming weeks.