Greek Limbo Slams Global Financial Markets a Day After Apparent Breakthrough.

A man looks at an electronic stock board of a securities firm in central Tokyo, Japan, Friday, Feb. 10, 2012. Asian stock markets dropped Friday after Europe’s finance ministers demanded more spending cuts from Greece before clearing a €130 billion ($170 billion) bailout to stave off the country’s bankruptcy.

Stock markets and the euro fell sharply Friday after Greece’s crucial bailout was put on hold by its partners in the 17-nation eurozone and the leader of a small partner in the country’s coalition government said he would vote against the demanded austerity measures.

Just a day earlier, the feeling surrounding Greece was very different. Following weeks of discussions, the Greek government appeared to have done enough to pacify creditors. Uh, those of you following this blog know better. See “Take the Money and Run”.

Greek Prime Minister Lucas Papademos and heads of the three parties backing his government — including George Karatzaferis who Friday railed against the deal — agreed to deep private sector wage cuts, civil service layoffs, and significant reductions in health, social security and military spending.

Investors had breathed a sigh of relief Thursday that the agreement would allow Greece to get a €130 billion ($173 billion) bailout package and avoid a bankruptcy next month that could send shockwaves around the financial markets.

But finance ministers from the other 16 eurozone states threw up a roadblock later in the day and insisted that Greece had to save an extra €325 million ($430 million), pass the cuts through a restive parliament and guarantee in writing that they will be implemented even after planned elections in April. News that the leader of a small partner in Greece’s coalition government would now vote against the austerity measures deepened the gloom on Friday.

The renewed fears of a Greek default, which could send shockwaves around the global economy, dented sentiment in the markets Friday.

In Europe, the benchmark index in Athens 3.3 percent down by late afternoon local time. The FTSE 100 index of leading British shares was down 0.8 percent at 5,846 while Germany’s DAX slid 1.7 percent to 6,675. The CAC-40 in France was 1.4 percent lower at 3,379.

The euro was also hit hard, trading 0.7 percent lower at $1.3182.

In the U.S., the Dow Jones industrial average was down 0.9 percent at 12,769 while the broader Standard & Poor’s 500 index fell the equivalent rate to 1,339.

The prevailing view remains that a deal will be cobbled together but the uncertainty is weighing on stocks. Once all the demands have been fulfilled, the eurozone will give Greece the green light to start implementing a separate bond swap deal with banks and other private investors designed to slice some €100 billion ($132 billion) off Greece’s debt load.

“For all the rhetoric, it is probable that a deal will still be reached because the consequences of not doing so would be so damaging for the EU as a whole,” said Gary Jenkins, managing director at Swordfish Research.

However, it is possible that the Greek politicians “suffer from negotiating fatigue and decide that putting their people through the austerity measures are not worth it.” Again, I say they take the money and flee from the Euro. What do you think happens with the Global markets then?

Earlier in Asia, Japan’s Nikkei 225 index fell 0.6 percent to close at 8,947.17. Hong Kong’s Hang Seng lost 1.1 percent to 20,783.86 and South Korea’s Kospi dropped 1 percent to 1,993.71.

 

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About Steve King

iPeopleFINANCE™ Chief Operating Officer. Former CEO of Endymion Systems, Inc. a $36m Information Systems Services company. Co-founder of the Cambridge Systems Group, the creator of ACF2, the leading IBM Mainframe Data Center Security product; acquired by Computer Associates. IBM, seeCommerce, marchFIRST, Connectandsell alumni. UC Berkeley alumni. View all posts by Steve King

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