Deadly Greek riots rattle world markets

5th May 2010, Comments 0 comments

A deadly fire-bomb attack cast a pall over a Greek general strike on Wednesday, fuelling market fears that protests could derail a massive bailout plan as the euro hit a new one-year low.

Three people died when hooded youths petrol-bombed an Athens bank as riots broke out on the fringes of mass street protests against tough austerity cuts ordered by the Greek government to stop the debt-ridden state going bankrupt.

Pushed to the brink of default, the Greek government has agreed to slash spending and hike taxes in return for 110 billion euros (143 billion dollars) in loans from eurozone countries and the International Monetary Fund.

But world markets took a new battering as fears spread from Europe and Wall Street to Asia that Greece's three-year bailout will not be enough to stop the crisis spreading to heavily indebted Spain and Portugal.

Losses were limited on Europe's main stock markets, after a sharp drop on Tuesday, but the euro slumped below 1.29 dollars to its lowest level for over a year, as fallout from Greece showed signs of infecting the eurozone.

The Greek crisis blew Asian stock markets into a tailspin and the Dow Jones Industrial Average fell sharply early on Wednesday as images of the rioting protestors were beamed onto the New York trading floor.

Stocks in Athens stocks meanwhile closed down almost four percent, while Madrid tumbled three percent.

"We don't know what political and financial authorities can do to calm things down, given the current feeling of panic on the markets," strategists at French bank BNP Paribas said in a note.

Greek police were placed on full alert after Wednesday's deadly clashes in Athens, which came on the eve of a parliament debate on the austerity plan.

Fighting broke out as protestors tried to storm the parliament, with riot police tear-gassing an angry crowd, while hooded youths attacked shops with petrol bombs in central Athens.

Two women and one man died in an arson attack on a branch of Marfin bank, which caught fire with 20 people trapped inside.

Prime Minister George Papandreou condemned the "murderous act," promising to bring the perpetrators to justice, and defended the painful austerity plan as the only solution for Greece.

"We took responsible, difficult decisions to save the country, " Papandreou said.

Athens international airport was deserted and the subway shut down as workers staged their third general strike in as many months.

"This is just the beginning of a great war," warned Helene Galani, a Greek journalist who joined tens of thousands at the main march in central Athens.

As the Greek people vented their fury, EU officials and the IMF scrambled to dispel fears the debacle would infect Spain or Portugal, whose long-term sovereign credit ratings were both degraded last week.

Madrid's benchmark Ibex-35 share index slumped more than 3.0 percent, extending losses from Tuesday when the index tumbled 5.41 percent on rumours, denied by Madrid, that it was poised to ask for an IMF bailout.

With Spain emerging as a litmus test for eurozone resistance to the crisis, the European Union's Economic Affairs Commissioner Olli Rehn insisted there was "no need to propose financial assistance" for Spain.

Moving to calm the markets, Spanish Prime Minister Jose Luis Rodriguez Zapatero said Madrid would "strictly respect" its plan to rein in the deficit.

And EU president Herman Van Rompuy said market moves following the Spanish and Portuguese credit downgrades were not justified, because their situations were "completely different" to Greece.

IMF chief Dominique Strauss-Kahn conceded there was a risk that "contagion" could engulf other weakened European economies, but he played down immediate concerns about Portugal, where stocks also plunged on Tuesday.

"People talk about Portugal, but it is already taking action," the IMF boss said after ratings agency Moody's warned it may further downgrade neighbouring Portugal's sovereign debt.

But analysts said investors were unconvinced.

"I believe that contagion risks are increasing," IHS Global Insight economist Diego Iscaro told AFP.

Market analyst Patrick O'Hare of warned that "European officials have more to do to prove that they have the resolve to keep Greece's problems from spreading."

"The market is literally not buying the notion that the 110 billion euro aid package for Greece is a panacea."


© 2010 AFP

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