Greek debt fears continue to shake world markets

766546521 300x178 - Greek debt fears continue to shake world marketsWorld stock markets fell Thursday as mounting concerns about Greece’s debt crisis eroded investor confidence following a bright finish on Wall Street the day before.

In Europe, the FTSE 100 index of leading British shares was down 43.95 points, or 0.8 percent, at 5,679.48 while Germany’s DAX fell 53.15 points, or 0.9 percent, to 6,177.23. The CAC-40 in France fell 40.82 points, or 1 percent, to 3,936.85.

Wall Street was poised to open lower too — Dow futures fell 30 points, or 0.3 percent, to 11,029 while the broader Standard & Poor’s 500 futures fell 4.4 points, or 0.4 percent, to 1,196.

Once again, jitters about Greece’s financial future dominated sentiment, after the European Union’s statistics office Eurostat said the country’s budget deficit in 2009 was way more than previously thought at a time the country is considering whether to tap a bailout facility from its 15 partners in the eurozone and the International Monetary Fund.

Eurostat said the budget deficit in 2009 as a percentage of economic output was 13.6 percent — that’s up from the previous estimate of 12.9 percent and nearly double the 7.7 percent recorded in 2008.

Greece’s government total debt as a proportion of GDP stands at a massive 115.1 percent, a burden so large that some analysts think it will have trouble paying it over coming years even if a bailout saves Athens from default this year.

Eurostat also warned that the Greek figures may actually be even worse, citing “uncertainties” over the figures related to social security funds and the recording of complex financial swap arrangements.

In all, the Eurostat figures fueled another flight away from Greek bonds.

The yield on the country’s five-year bonds has spiked to a massive 8.85 percent from just above 8 percent Wednesday, while the equivalent rate for 10-year issues has risen to 8.4 percent from 8.05 percent, taking the spread between Greek and German bond yields up to 5.3 percentage points.

Analysts say that spread will make it impossible for Greece to tap the markets for cash to meet its upcoming debt obligations and reduce its budget deficit by four percentage points this year.

Markets increasingly think the Greek government, led by Prime Minister George Papandreou, will have no choice but to call upon the bailout facility agreed in Brussels last month.

“The sooner the IMF and the EU swing into action, the better,” said David Buik, markets analyst at BGC Partners.

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Greece began talks Wednesday with the IMF, the European Central Bank and the European Commission on details of a rescue package to deal with its debt crisis.

The talks are expected to last at least ten days and are set to focus on the terms and conditions of the joint eurozone-IMF bailout plan agreed in Brussels earlier this month so the package can be activated quickly if Greece requests the aid.

Eurozone countries have pledged euro30 billion ($40.5 billion) in loans for this year but have not spelled out any longer-term commitments.

Earlier in Asia, Japan’s Nikkei 225 stock index dropped 140.96 points, or 1.3 percent, to 10,949.09 despite news that the nation’s exports expanded for a fourth straight month in March.

Elsewhere, Hong Kong’s main stock index shed 0.3 percent to 21,454.94 and South Korea’s Kospi lost 0.5 percent to 1,739.52. China’s Shanghai index retreated 1.1 percent to 2,999.48.

In the currency markets, the euro was dogged by the developments regarding the Greek debt crisis, falling 0.3 percent to $1.3342.

The pound was also in focus, trading unchanged at $1.54 ahead of the next leaders’ debate in Britain’s general election campaign — the election is two weeks from today.

Following last week’s debate, Britain’s perennial third-party, the Liberal Democrats, enjoyed a massive boost in the opinion polls after its leader Nick Clegg was widely considered to have emerged the victor over his counterparts in the Labour Party and the Conservative Party, Gordon Brown and David Cameron.

The boost in the fortunes of the Liberal Democrats ratcheted up market expectations that the outcome of the election could be tight and that some sort of horse-trading will be required following the results.

The markets don’t like uncertainty, especially at a time when investors await measures to deal with Britain’s debts — figures earlier provided some comfort though as the budget deficit in the fiscal year to end-March was lower than previously thought at 153 billion pounds, 10 billion pounds less than government forecasts.

“This was a little smaller than the government’s estimates but, insofar as it was the largest deficit since World War II, this is little cause for celebration,” said Jane Foley, research director.

In oil markets, benchmark crude was down 54 cents at $83.14 a barrel.