Markets fall on renewed Greek default fear

Tim Wallace
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Yanis Varoufakis heads the Greek negotiators
STOCK markets slid and bond prices fell yesterday on renewed fears that the Greek government will run out of money and default on its debts, as negotiations with creditors drag on.

Earlier in the week, the Eurogroup and Greek finance minister Yanis Varoufakis insisted that good progress was being made.

But markets are less convinced that the talks will meet their goals. In part that is because the Greek government had proudly stated that it had successfully made a €750m (£537m) repayment to the International Monetary Fund (IMF) – only to reveal yesterday that the money came from another account with the IMF.

The government needs to find more than €1bn to pay salaries and other costs at the end of this month, and could run out of cash within weeks.

Markets have reacted by selling off government bonds.

Germany’s 10-year borrowing costs have risen by 53 basis points in the past month, while Britain’s are up 46 basis points and the US’ 38 points.

The picture is starker in the Eurozone periphery, where Spanish yields are up 63 basis points and Italy’s up 60.

“It is like groundhog week, this slow, painful faffing about with Greece,” said Mike van Dulken from Accendo Markets.

“Wednesday is the big hump, where we see if Greece can make progress. I am not convinced – so far it has messed around moving money from here to there. It is not a technical default, but it has so little money left, it is crazy.”

Some of the large swings in prices has also been blamed on a lack of liquidity as few investors are buying or selling, instead sitting on their investments for a lack of a better place to move their money.

Traditionally, share prices rise when the economy does well, while investors move into bonds in riskier periods, but quantitative easing from the European Central Bank (ECB) has dampened the effectiveness of that mechanism.

Meanwhile, the ECB increased the limit on Greek banks’ emergency loan facilities to €80bn, following worries that the outflow of deposits from the institutions is accelerating.

The EuroStoxx50 index of shares fell 1.42 per cent on the day, closely followed by the FTSE100’s 1.37 per cent fall. US stocks joined the slide, with the Dow Jones down 0.2 per cent.

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