Greece prepares new cabinet as financial chaos triggers global market slump – 4891

16th June 2011

The prime minister had discussed forming a coalition between his PASOK parliamentary group and New Democracy, the main conservative opposition party, but no deal was reached, according to people with knowledge of the talks, says the Financial Times (paywall).

Greece's 18-month sovereign debt crisis brought the government to the brink of collapse as public fury over savage austerity measures erupted in pitched battles with riot police on the streets of Athens, adds a report in the Guardian.

The escalation of the Greek crisis had instant European and global impact, sending world stocks tumbling and exposing European Union paralysis over whether and how to launch a second attempt in a year to save Greece from insolvency.

London's index of leading share opened down 1% at 5682.16 after sliding 1% yesterday on concerns that Greece's problems could spread to other indebted eurozone countries. Major bourses in Germany and France also dropped, reported the Daily Telegraph.

The falls followed tumbling stock markets in US and Asia as Greece's debt woes and its implications for the eurozone economy, plus signs of slowing growth in the US, China and India, reignited fears for the global recovery, says the report.

The Dow Jones fell 1.5% to close at 11,897.27 on Wednesay, erasing all of its 123-point gain on Tuesday and putting it on track for a seventh straight week of losses. While Japan's Nikkei 225 fell 1.7%, South Korea's Kospi slid 1.9%, Hong Kong's Hang Seng dropped 1.8%, the Shanghai Composite lost 1.9% and Australia's S&P/ASX 200 was down 1.9%.

"Greece is like a Lehman Brothers situation, except a country version," said Tanrich Securities' Vice-President Jackson Wong in Hong Kong in the Daily Telegraph. "It's magnifying uncertainty right now, even though most banks don't have much exposure to the euro debt situation."

There was little sign that the differences had been bridged at Tuesday's emergency meeting of eurozone finance ministers, says the Guardian report.

They meet again in Luxembourg on Sunday under pressure to strike a deal on a new Greek rescue by 20 June, ahead of an EU summit next Thursday.

Keith Wade, chief economist at Schroders, says: "Greece is really proving to be a much more intractable problem than initially thought. The reason why fears of a Greek default have come back is because it is has become apparent that Greece will not be able to raise funds from the

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