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Shares plummet as Greek PM shocks financial leaders ? Latest Market Analysis

Last week Greece was offered the fantastic opportunity to write off half of its debt, an injection of new funds and an opportunity to get its financial house in order and return to the position of being a solvent nation. If you had half of your mortgage written off you would expect to sacrifice at least part ownership of your house or even worse have it repossessed. However, after a decade of government lies about its financial position and a populous dominated by tax avoidance, the cost of this debt write down for Greece was merely the pain of austerity, cutting spending the country had never really been able to afford in the first place, a level of austerity that is more severe than it needs to be as the nation still refuses to pay its taxes and even the tax collectors themselves are on strike.

Despite such an act of generosity by EU leaders, markets were left reeling today as the Greek Prime Minister George Papandreou stunned Europe by announcing he would let his voters have a referendum on whether to accept the terms of the bailout, which then left his own socialist party demanding a confidence vote on his leadership later this week. With the referendum due in January and a tranche of aid due to Greece in the next few weeks it left financial markets in complete uncertainty about how the European Debt problem may now develop.

Share indices plummeted, particularly in Europe with the CAC 40 and DAX benchmarks of France and Germany falling over 5%, back to levels last seen 4 weeks ago before any pre and post EU summit euphoria. In the UK the FTSE 100 fell a ‘mere’ 2.2% to 5421, whilst at the time of London’s close the major indices in the US were approximately 3% lower.

A mixed bag of UK economic data became almost irrelevant against the bigger picture, but as it happened a Q3 GDP figure of 0.5% was above forecasts, whilst a UK manufacturing index for October suggested a contraction in output and was well below market expectations. The biggest losers on the day were of little surprise, Barclays, Lloyds and RBS only just avoiding double digit declines, whilst the mining sector collectively lost over 7%.

Having lost value slowly over the last few weeks, UK and US Treasury bonds were back in favour, but the surprise of the day was that as investors fled risk assets, such as equities and industrial commodities, the price of Gold also fell by 1% to $1711.

This was posted in Bdaily's Members' News section by John Dance .