• 05 OCT 2011
US now in bear market territory amid fears banks face bigger losses in Greece
By Ben Chu | Independent
Stock markets across the world plunged yesterday as European finance ministers announced they would delay a decision on releasing €8 billion (£7bn) in emergency payments to Greece until November.
The Eurogroup also announced its intention to impose greater haircuts on the holders of Greek sovereign bonds, reopening a deal agreed in July that would see banks accept a 21 per cent write-down on the value of their holdings of Greek debt.
"We have to take into account the fact that we have experienced changes since the decisions we took on 21 July," the Eurogroup chairman, Jean-Claude Juncker, said.
The Finnish government also confirmed that it will receive collateral from Greece in return for contributing to the second €109bn EU/IMF bailout of the country. Helsinki, however, will have to pay a high price for the special concession, in the form of lower interest rates on loans extended.
Investors sold shares heavily across Europe and America yesterday in response to the news from Luxembourg. The German Dax index closed down 2.98 per cent. France's Cac fell 2.61 per cent. The American S&P 500 officially entered a bear market in afternoon trading yesterday when it fell 20 per cent from its peak earlier in the year. The FTSE 100 closed at 4944.44, down 2.6 per cent. Despite previously claiming that Greece would run out of money by the middle of this month, the Greek Finance Minister, Evangelos Venizelos, said yesterday that Athens can hold out until November. But the longer it takes for these funds to be released, the more nervous markets will grow about a possible uncontrolled Greek default.
Some investors have been comforted in recent weeks by reports that the eurozone leaders are preparing a plan to leverage the €440bn European Financial Stability Facility (EFSF), which it is felt would spell a decisive intention to stand behind all members of the single currency.
But comments from the Austrian and German finance ministers yesterday cast fresh doubt on whether such a plan would be approved. The outgoing head of the European Central Bank, Jean-Claude Trichet, also expressed his opposition to suggestions that a leveraged EFSF could be backed by the ECB. He told the European Parliament: "I'm not in favour of bailout funds financed by the ECB."
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