Greek debt crisis spreading 'like Ebola'
and Europe must act now, OECD warns
The Greek debt crisis is spreading “like Ebola” and Europe must act now to protect the stability the financial markets, according to the Organisation for Economic Co-operation and Development.
Published: 11:46AM BST 28 Apr 2010
The Greek debt crisis is spreading like Ebola and Europe must act quickly, the OECD warned. The Parthenon in Athens, pictured beneath an EU flag. Photo: EPA
“It’s not a question of the danger of contagion; contagion has already happened,” OECD secretary general Angel Gurria said.
“This is like Ebola. When you realise you have it you have to cut your leg off in order to survive,” he added, saying the crisis is "threatening the stability of the financial system".
Alistair Darling, the Chancellor, called for Eurozone countries to "urgently" agree a bail-out for Greece or risk a further decline in stock market confidence.
Mr Darling said it was "absolutely essential" that Greece's problems were sorted out "quickly, effectively and decisively", following a torrid 24 hours for world markets.
Asked on LBC Radio about the drop in the FTSE on Tuesday, the Chancellor said stock markets rise and fall but added: "That's my argument about the situation in Greece – we have got to make sure that it gets sorted out.
"But the primary responsibilities are for the other members of the euro group.
"They know that they have got to sort it out. They have promised money, and what I would say is they need to make that money available as soon as possible."
He added: "If we can sort out the problems in Greece quickly, then that will make people more confident."
The crisis in Greece sent stock markets and the euro reeling for a second day as fears grew that it would not be able pay its debts.
A widespread stock market sell-off was triggered on Tuesday when ratings agency Standard & Poor's cut Greek debt to junk status, while a downgrade to Portugal reignited worries about a growing eurozone crisis.
As the European Union said that it would hold an emergency summit on Greece, the Frankfurt stock market slid 1.93pc and Paris 2.16pc in midmorning trading.
London's FTSE 100 fell 1pc, one day after suffering its biggest one-day loss since November. Lisbon tumbled 6pc and Madrid fell 3pc, while Athens was down 1.69pc after heavy recent losses.
"Any hope that the Greek issue was finally coming under control took a huge blow yesterday with the country's sovereign debt being downgraded to junk," said Ben Potter, an analysts at IG Markets.
Downgrades unsettle investors
The debt crisis also unsettled Asian markets, with Tokyo dropping 2.6pc and Hong Kong 1.3pc.
Wall Street shed 1.9pc overnight, with the Dow Jones index finishing under the symbolic 11,000-point level.
"The downgrading of Portuguese and Greek debt has spooked investors, as there is a very real fear that other European countries could be downgraded too," said Owen Ireland, an analyst at ODL Securities.
In the foreign exchange market on Wednesday, the European single currency hit a new one-year dollar low. The euro plunged to 1.3143 dollars – last seen in April 2009 – as traders fretted over a debt crisis that could spread to other nations such as Portugal, Spain, Italy and Ireland.
Bond yields reflect default fears
In bond market trade on Wednesday, the yield on 10-year Greek sovereign bonds soared to 11.076pc, the highest 10-year level ever recorded in the eurozone, after 9.73pc on Tuesday.
"The S&P downgrades to Portugal and Greece brought a fresh bout of fears to equity and credit markets alike, with concerns over contagion effects continuing to rise," said Deidre Ryan, an analysis at Goodbody's stockbrokers.
"Along with the spike in peripheral euro-area bond yields, the euro also continues to weaken, falling below the $1.32 level to its lowest level in a year."
Debt-laden Greece has appealed for emergency loans totalling €45bn from the European Union and the International Monetary Fund.
The funds would be made available on condition that Greece implemented tough austerity measures, currently the subject of talks with the EU and the IMF.
In response the latest news, the European Union has called an emergency summit on Greece, with eurozone leaders set to meet next month.
EU President Herman Van Rompuy said leaders from the 16 nations using the single currency would meet in Brussels "by around May 10" to try to agree how to set up a massive rescue operation.
Speaking in Tokyo, Mr Van Rompuy said there was "no question" of Greece defaulting.
Across in Athens on Wednesday, strikes and protests erupted as its crisis-hit economy reeled from another scathing downgrade of its debt and the stock exchange took emergency measures to deter speculators.
Amid a growing recession, a general strike has been called for May 5 against austerity cuts that the government is enforcing to slash the rampant public deficit and debt worth nearly €300bn.
Oil prices also sank on Wednesday, shaken by the Greek crisis and the strong US currency, which makes dollar-priced crude more expensive for foreign buyers.