The FTSE 100 crashed 1.3 per cent, while the euro plummeted to $1.2801 – its weakest level against the dollar since March 2009. The cost of insuring Spanish and Portuguese debt against default spiked to euro lifetime highs and Lisbon had to pay more than four times its previous yield to sell six-month treasury bills.
The sell-off came as demonstrators in Athens, protesting at cuts to pay and pensions to try and stave off the deficit, stormed the Marfin bank setting it on fire and claiming the lives of three people.
Investors ignored desperate pleas from politicians to support the €110bn rescue package for Greece.
“Nothing less than the future of Europe is at stake. Immediate help is needed to ensure the financial stability of the Eurozone. This must be done to avoid a chain-reaction to the European and international financial system, and contagion to other Eurozone states. There is no alternative,” insisted German chancellor Angela Merkel.
European Monetary Affairs commissioner Olli Rehn said the crisis must not spread. “It’s absolutely essential to contain the bushfire in Greece so that it will not become a forest fire and a threat to financial stability for the European Union and its economy as a whole,” he said.
And European Commission President Jose Manuel Barroso also attacked financial “speculators”, saying the EU executive could move quickly to regulate them further if they acted irresponsibly.
But many investors warned that the EU-IMF plan is being seen as a “quick fix” that puts off the day of reckoning for Greece.
Bill Gross, head of the US bond fund Pimco, said yesterday a “restructuring event” for Greece was inevitable in the end.