Fears that Greece may default on its debts and potentially sink the euro intensified today dragging London’s blue chip shares index below the 5000 mark Tuesday.
Eurozone finance ministers delayed a decision as to whether to pay the debt-stricken nation the next tranche of its 110 billion euro (94.4 billion pounds) bailout money, sparking further doubts that it will keep up with its debt repayments.
The FTSE 100 Index fell 2.5 percent today, extending its abysmal form after its worst quarter for nine years saw nearly 14 percent wiped off its value.
The uncertainty over Greece hit markets around the world.
Eurozone ministers have cancelled their meeting about the debt-stricken country planned for October 13 after the country admitted it would fail to meet its tough deficit reduction measures.
A decision is not now expected until the second half of the month following a review of Greece’s economy.
Greece had previously warned it will ultimately go bankrupt if it stops receiving the bailout cash.
The losses were also driven by reports that eurozone finance ministers are planning to ask private bond holders to accept bigger losses on Greece’s debt to reduce the pressure on the country.
Pledges from the French, Belgian and Luxembourg governments to prop up Belgian bank Dexia after its credit rating was put under review failed to reassure markets.
There is increasing speculation that the bank, which was among the first to be bailed out in the credit crisis, could be broken up.
Banks were among the biggest losers as fears of another credit crunch grow. Barclays and Royal Bank of Scotland were down 6 percent and Lloyds was off 5 percent.
Analysts said it has been a volatile summer for global markets, driven by almost unprecedented uncertainty amongst investors about the global economy and fears that politicians are unable to fix economic problems.
Recent economic data has suggested the recovery in the West may be petering out, feeding renewed worries about the eurozone debt crisis.
This, it is feared, could in turn cause a second banking crisis if governments are unable to pay back their debts, the analysts added.
The fears have seen the market wipe out gains from earlier in the year.
Stocks had one of their worst quarters in the past decade in July to September.
Shares in London’s FTSE dropped 14 percent, the worst quarterly performance since 2002.