WATCH: Police fired tear gas at rock-throwing demonstrators outside the Greek parliament in Athens on June 15. At least a dozen people were injured in the clashes and many were detained. (Video by AP)
Key stock-market indexes around the world have registered losses and the euro has plummeted against the dollar amid growing fears that Greece will not be able to pay off debts owed to investors who have bought Greek government bonds.
Markets have taken blows on Wall Street and in Japan, as well as in London and Europe.
Hopes that Greek Prime Minister George Papandreou would push an unpopular austerity package through parliament to prevent a debt default have faded since the collapse of coalition talks with the opposition and the outbreak of violence in Athens on June 15 during demonstrations against the austerity plan.
Papandreou spoke to the country in a nationally televised speech late on June 15, announcing he would reshuffle his cabinet and seek a vote of confidence for his new government this week after the opposition made his resignation a precondition for joining any government of national unity.
"Today I offered new proposals again to the leaders of the opposition in order to move faster toward a necessary national consensus. I made clear that my duty and my post are not interdependent," Papandreou said.
"Despite my position, the opposition used this effort for public-relations purposes and not in terms of political and national responsibility."
The European Union says it expects eurozone finance ministers to agree on the payout of 12 billion euros ($17 billion) in aid for Greece on June 19 and decide on a new bailout next month.
EU Economic Affairs Commissioner Olli Rehn said on June 16 the 12 billion euros were expected to fund Greece's sovereign debt until September. Rehn said a separate, medium-term package would be discussed in July.
Rehn said he expected those decisions to come in agreement with the International Monetary Fund (IMF), which had previously said it couldn't pay its part of the next aid installment without assurance over Greece's long-term financing.
Rehn said he expected Greece's parliament to pass new austerity measures.
The proposed measures would include new tax increases, spending cuts to social programs and pension plans, and the privatization of state-owned property through 2015.
A man walks past a screen showing graphs of the stock indexes of Dow Jones Industrial Average, Nasdaq, Hang Seng, and Shanghai outside a brokerage in Tokyo on June 16.
Germany's DAX index is among those opening lower today in Europe as traders worried about additional market uncertainties after Papandreou's announcement of a cabinet reshuffle and vote of confidence later this week.
"A possible rebuilding of the government in Athens is seen by the stock exchange with great concern because it shows that we see there huge uncertainties, political uncertainties, and that would be followed by economic uncertainties," said Olivier Roth, a chief trader in Frankfurt with Close Brothers Seydler Bank. "That's not a good thing at all for the stock exchanges."
Adding to market uncertainties, Moody's Investors Service says it may downgrade its rating of three major French banks because they hold a significant amount of Greek government bonds -- exposing them to fallout from the Greek debt crisis.
Financial analysts worry that a Greek debt default would be particularly contagious within the eurozone. In particular, they say it could cause other economically troubled countries that use the common euro currency -- like Portugal and Ireland -- to be seen as riskier investments. That would make it more expensive for those countries to borrow money on the international bond market, pushing them closer to defaulting.
Can Default Be Avoided?
Analysts say one possible move by those countries could be a strategic default that would allow them to wipe their debts clean and kick-start economic growth.
But such a move would likely cause those countries to be kicked out of the eurozone, creating a domino effect that could rip the eurozone apart. In such a scenario, economic shocks would be felt across the globe.
Roth believes that Greece needs support, but in "structural ways, so that they can rebuild their economy slowly and get some breath back because all the savings packages have the problem that Greece is going downward because of the saving packages. So we have to support them in other ways than we did, which means we need a Marshall Plan."
The Marshall Plan was an effort by the United States to channel vast resources to the governments of Europe in order to stimulate the rebuilding of the continent following World War II.
Meanwhile, French President Nicolas Sarkozy today called on other European Union leaders to stop quarreling about how to help Greece and instead display the unity that had underpinned the euro currency since its creation more than a decade ago.
But others -- including analysts at the Economist Intelligence Unit -- argue that a Greek debt default cannot be avoided and that plans for a Greek bailout would merely delay the inevitable.
written by Ron Synovitz, with news agency reports