Debt default fears spark $ 40b crash on our bourse
Market plunges on ‘ Grexit’ uncertainty
AUSTRALIA’S sharemarket has suffered one of its biggest fall in years, with nearly $ 40 billion wiped out as Greece inches towards a default on its debt and a potentially catastrophic exit from the eurozone.
The S& P/ ASX 200 plunged 2.2 per cent to 5422.5, its lowest level since January, as the market got caught up in a global sell- off stemming from the collapse of debt negotiations between Greece and its European Union and International Monetary Fund creditors. Greece needs to repay ¤ 1.6 billion ($ A2.3 billion) of loans to the IMF by today to avoid defaulting on its debt.
Investors had widely expected the two sides to do what they have done many times before and strike an 11thhour deal.
But Greek Prime Minister Alexis Tsipras derailed the talks and stunned Europe by announcing a referendum for July 5 on the creditors’ proposed reform package that would see the country cut pensions and raise taxes to pay its debts.
Mr Tsipras’s Syriza party is urging citizens to vote against the reform package in a move that could precipitate Greece’s departure from the eurozone.
News of the collapse of talks shook global markets, with Japan’s Nikkei and Hong Kong’s Hang Seng both down more than 2 per cent.
The pain continued as European stocks dived at the start of trading, with Frankfurt and Paris indices shedding more than four per cent.
There were few places to hide on the Australian market, with the major banks, miners, retailers, healthcare providers and telcos all sharply lower. Only a few companies managed to score gains, most of which were gold miners as traders looked for safe- haven assets to avoid the carnage.
IG market strategist Evan Lucas said while the Australian market had little direct exposure to Greece, traders were concerned about what a Greek exit from the eurozone, or Grexit, would mean for other debt- laden EU countries including Italy and Spain.
“There is not much you can point to in terms of how this will end and markets hate uncertainty,” he said.
Greece is in the midst of arguably the worst economic crisis experienced by a developed country in modern times.
Its economy has shrunk by about a quarter in a depression that has so far lasted more than six years, while its unemployment rate is hovering above 25 per cent.
If the Grexit goes ahead, Greece will need a new currency, which UNSW economist Tim Harcourt says will be worth somewhere between 50- 60 per cent of the euro.
That would be bad news for savers, including Greek Australians with bank accounts in their homeland.
“Anyone holding euros in cash would immediately be much richer. But those GreekAustralians with euros in an Athens bank account would be badly hurt,” he said.
Greece has closed its banks for a week to prevent people withdrawing all of their savings and is limiting ATM withdrawals to help head off the potential for a collapse of the country’s financial system.