Athens riots and government collapse causes oil prices to drop by $2 a barrel and Dow Jones and other indices to plunge
Larry Elliott and Heather Stewart
Riots in Athens during protest against plans for new austerity measures and government collapse have caused turmoil in markets round the world. Photograph: Vladimir Rys Photography/Getty Images
Rioting on the streets of Athens and the collapse of the Greek government has sent world markets into turmoil. Shares and oil prices plunged, with the Dow Jones Industrial Average down 180 points by midday in New York, while the price of West Texas crude had fallen by more than $2 a barrel. The hi-tech Nasdaq index was down by more than 1%.
“It’s sell and ask questions later,” said Steven Goldman of Weeden & Co in Greenwich, Connecticut.
Yields on two-year Greek bonds – or the interest rate the Greek government would have to pay lenders – soared to almost 28%, suggesting that investors believe the country is on the point of bankruptcy.
Fears that the contagion could spread to other European economies saw bond yields in Ireland and Portugal jump.
World markets have watched with rising anxiety in recent weeks as Europe’s leaders have failed to resolve the mounting Greek debt crisis. An emergency meeting of eurozone finance ministers broke down without a resolution on Tuesday.
The German government is calling for holders of Greek bonds to be forced to bear some of the costs of a new bailout, but its stance has been publicly contradicted by the European Central Bank, which is concerned about the risk that any restructuring would create mass panic in financial markets.
Michael Derks of broker FxPro said Greece was “becoming ever more insolvent. Tuesday’s latest budget deficit figures confirmed that fiscal consolidation in the country is just plain nonsense.”
He added that a Greek banking collapse, caused by a default, would heighten concerns about other highly indebted economies such as Ireland and Portugal, and as a result, the eurozone was working hard to make sure Greece paid its creditors. “Eventually, however, it becomes impossible to stop the financial dominoes from falling over. We may well have reached the point of no return.”
The Irish finance minister, Michael Noonan, was reported yesterday to be keen to ensure that bondholders in the bailed-out Anglo-Irish Bank took some losses on their investments. “We don’t think the Irish taxpayer should have to redeem what has become speculative investment,” he told Irish state broadcaster RTÉ.
Yields on US treasury bonds fell as the chaos unfolded and investors sought a safe haven from the eurozone crisis, while the euro weakened to $1.42 against the dollar from $1.44 on Tuesday.
Athens received a €110bn bailout a year ago but has been unable to balance the books despite slashing public sector jobs and salaries, and raising taxes.
The FTSE100 closed down more than 60 points. Bank shares fell sharply after the chancellor signalled his plans to ringfence banks’ retail operations.
