Markets dive

Exchanges stumble,

Unexpected developments in the Greek debt crisis drove North American stock markets to their worst performance in months on Monday.

In Toronto, the S&P/TSX composite index tumbled 317.94 points to14,490.15 in a decline across all sectors.

The loss, the worst since dropping almost 361points on Jan. 5, was more than enough to erase all remaining 2015 gains to date on Canada’s main index, which finished 2014 at 14,632.44 points.

Global markets slumped as investors weighed the chances of a Greek exit from the euro area. The MSCI World Index of developed markets dropped 2 per cent, the most in two years.

Greece imposed stringent capital controls on Monday, shuttering banks and financial markets until at least July 6, the day after its citizens will vote in a referendum on proposals needed to restore bailout aid.

German Chancellor Angela Merkel and French President François Hollande signalled they’ve reached the limits of their ability to safeguard Greece’s financial state and offered no further concessions.

New York markets also took it on the chin, falling to below their starting point for 2015 or hovering just above it.

Craig Fehr, Canadian markets specialist with Edward Jones in St. Louis, said a major factor in the big drop on global markets was the surprise decision by Greek Prime Minister Alexis Tsipras to call a referendum on austerity measures demanded by Greece’s creditors. Tsipras is urging Greeks to reject those demands.

“That’s really the curveball that was thrown to markets,” Fehr said. “That’s why we’re seeing the big knee-jerk reaction lower today.”

Prior to that, markets had started to price in or at least become comfortable with the prospect of a certain amount of brinkmanship between the two sides, he said.

“Certainly we know that the market hates uncertainty and there is a tremendous amount of uncertainty because nobody knows how this is ultimately going to play out. And again, that referendum really clouds things.”

In Greece, both banks and the country’s stock market were ordered shut until the referendum after talks aimed at freeing up € 7.2 billion in rescue loans fell through.

Without that money, Athens appears certain to miss a € 1.6-billion payment to the International Monetary Fund, due Tuesday.

Although the IMF is unlikely to declare Greece in default immediately, such a move could eventually lead to Greece’s exit from the 19-member euro currency bloc and even possibly from the 28-member European Union itself.

But even if the worst does happen, Fehr doesn’t subscribe to fears of significant damage to the world or eurozone econo- mies, saying that Greece is only 2 per cent of the region’s economy and its debt, although more than € 300 billion, “is small on a relative scale.”

And he noted that things have changed remarkably since the European debt crises of 2011 when several other countries including Italy, Spain, Ireland and Portugal were facing serious debt problems and struggling economies.

Those countries are all doing better now, so even if there were an exit by Greece, “there is very little incentive for other countries to try to follow.”

Another important difference is that most Greek debt is now owned by the European Central Bank and the IMF, he said.

“So from that perspective, the risk that is borne is not really to the banking or the financial system, which is critically important, because that can allow the European banking system to continue to function at a reasonably normal level.”