Markets quiver as Greece looks set to default

People line up at an ATM of a Piraeus bank branch as concern about Greece leaving the euro zone...
People line up at an ATM of a Piraeus bank branch as concern about Greece leaving the euro zone escalates. Photo by Reuters.
The New Zealand sharemarket was likely to follow the lead of Wall Street and head lower as the prospect of a Greek exit from the euro zone escalated, Craigs Investment Partners broker Chris Timms said yesterday.

Greece's European partners shut the door on extending a credit lifeline to Athens, leaving the country facing a default on Wednesday that could push it out of the euro and cause ripple effects across the European economy and beyond.

The Greek Government must repay a 1.6billion ($NZ2.6billion) loan to the International Monetary Fund on June 30.

Mr Timms said the left wing Greek Government asked for an extension until after a July 5 referendum in which Greek voters would decide whether to accept tough new bailout terms the Government opposed.

Without the extra time, Athens was set to default on the IMF payment.

Finance ministers of the other 18 countries sharing the euro blamed Greece for breaking off negotiations and pledged to do whatever it took to stabilise the common currency area, declaring they were in much better shape to do so than they were at the height of the euro zone crisis a few years ago.

Mr Timms said United States stocks rose early in the week and the Nasdaq hit records, on an apparent breakthrough in the Greek talks. But the tide turned mid week as Greece and creditors drifted further apart and the rhetoric on both sides intensified.

''Stocks moved hand in glove with the impressions of the success and failure of the Greece talks.''

There would be nervousness around today as New Zealand awaited some sort of direction from other markets, he said.

In New Zealand, it would not make a lot of difference to retail investors, who could take the opportunity to buy shares at lower values as overseas investors looked for a safe haven.

''Some investors will take money off the table and probably look to cash first and foremost, and there could be a bit of play on the currency.''

Asked what the longer term implications could be, Mr Timms said it was impossible to tell, as markets had not faced such a problem as Greece was providing.

New Zealand would follow the lead and look for direction overseas, he said.

Australian markets would be focused on Greece as another reporting season wound up.

The futures market was pointing to a small 10 point gain at today's opening after a mixed finish in US and European markets. CommSec chief economist Craig James said Australian investors were likely to tread warily because of the uncertainty.

''There's still a degree of optimism - unlike the situation about three years ago, it's unlikely to start a contagion.''

Britain's top equity index ended lower on Friday, dragged down by mining stocks and the threat of a Greek default, Reuters reported.

Charles Hanover Investments partner Dafydd Davies was still optimistic a deal could still be reached to save Greece today.

The rejection of the extension piled huge pressure on Greek banks, which depend on central bank support to remain afloat. Long lines formed in front of cash machines as people rushed to pull their money out while the banks were still operating normally.

Greek Finance Minister Yanis Varoufakis insisted a deal could still be reached in time for the IMF deadline, warning the credibility of the euro zone could be permanently damaged by its rejection of Greece's plea for more time.

The offer from creditors required Greece to cut pensions and raise taxes in ways Greek Prime Minister Alexis Tsipras had long argued would deepen one of the worst economic crises of modern times in a country where a quarter of the workforce was already unemployed.


At a glance

• Euro zone finance ministers say negotiations are over.
• Greek Prime Minister Alexis Tsipras announces a referendum for July 5.
• Greece must pay a 1.6 billion debt to the IMF on June 30.
• Police increase security as lines form in front of cash machines.
• Greek Finance Minister still has hopes of bailout today.


 

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