Global stocks fall on 'Grexit' jitters

[WASHINGTON] Global stock markets fell on Monday, with European bourses taking the heaviest hits, after Greeks rejected more austerity in a weekend referendum, raising fears that it would crash out of the eurozone.

With the path ahead for Greece and its creditors appearing even more challenged, the Eurostoxx 50 blue chip index sank 2.22 per cent, while the CAC 40 in Paris fell 2.01 per cent and Frankfurt's DAX 30 shed 1.52 per cent.

Market damage was worse along the southern periphery: Milan plunged 4.03 per cent, Madrid 2.22 per cent and Lisbon fell 3.81 per cent.

The toll was less severe outside the eurozone, but investors felt it nonetheless.

In London, the FTSE 100 index lost 0.76 per cent, while on Wall Street, the Dow Jones Industrial average crumbled 0.26 per cent and the S&P 500, 0.39 per cent.

Meanwhile, the euro continued to erode against the dollar, falling to US$10.56 from US$1.1107 on Friday.

CLOSER TO GREXIT?

Market tensions rose as the European Central Bank ratcheted up pressure on Greece by tightening collateral conditions for liquidity funding to the country's commercial banks, in the absence of a new bailout deal from EU creditors and the International Monetary Fund.

The resounding "no" vote in Sunday's referendum on an EU bailout program with tough austerity and reform measures underscored the still-sizable difference between the two sides.

In the worst case, analysts say, Greece won't be able to obtain any new funds and could face the radical option of a "Grexit," or exit from the eurozone.

After last week's breakdown of talks between the two sides, and a default by Athens on its IMF debt, French President Francois Hollande and German Chancellor Angela Merkel said on Monday the door was open for a return to debt negotiations.

But they called on Greek Prime Minister Alexis Tsipras to make "serious, credible" proposals.

Dr Merkel said she was waiting "for very precise proposals from the Greek prime minister," that eurozone officials could weigh in a meeting on Tuesday.

The ongoing stalemate means the country would keep its banks, already closed for a week, shuttered for several more days, stifling economic activity.

"Holding firm on their existing policy stance threatens to see Greek banks run out of money within days which would send Greece over the edge," said Rebecca O'Keeffe, head of investment at stockbroker Interactive Investor.

Analyst Andreas Rees of Italian banking giant UniCredit was categorical, saying: "If Mr Tsipras does not make serious concessions, Greece is leaving the eurozone."

Economist Claus Vistesen of Pantheon Macroeconomics said that the European economy and financial system is stronger since the last sovereign debt crisis in 2012.

Still, he warned, the European economic recovery "is resilient, not immune" to the fresh turmoil from Greece.

"Markets could be overestimating Germany's desire to do a deal with Greece; risks remain elevated," he said.

Moreover, he said that the ECB's ability to step in further to help Greek banks is tightly restricted, leaving even fewer choices for the Greek government, which is under pressure from the people to reopen the banks.

Earlier in the day, news of the "no" vote on the referendum cascaded negatively in Asian markets, exacerbated by turbulence in Chinese stocks.

The Shanghai market got a 2.41 per cent boost from a government move to beat back a crash with buying support.

But otherwise, Hong Kong led the losers with a 3.18 per cent fall, Tokyo dropped 2.08 per cent, Seoul 2.40 per cent, Sydney 1.11 per cent and Singapore, 0.3 per cent.

In currencies, the yen was slightly higher against the dollar at 122.55 yen, and the euro, 135.50 yen. The pound fell to US$1.5607.

AFP

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