European stock markets were hit hard on Monday after the news that Greece is likely to fail in meeting its target for deficit cuts.
The economically troubled eurozone country announced that its deficit will be 8.5% of gross domestic product (GDP). This is down from the previously stunning heights of 10.5% in 2010, but the EU and International Monetary Fund (IMF) set their target to 7.6% of GDP.
The Greek government blamed the inability to meet its target on a worsening recession.
Monday’s market saw the FTSE 100 down 2%, while France’s Cac lost 3% and the German Dax fell 2.5%.
The effects of a prospective Greek collapse were seen outside of Europe as well, as Wall Street had a lower opening. The euro ended at 1.33 against the dollar, making it fall to its lowest in eight months.
Because of their perceived ties with Greek government debt and the risks associated with this, banking stocks were among the hardest hit in the market.
Franco-Belgium bank Daxia was one of the most heavily affected, falling as much as 14% and receiving a warning from Moody’s about a possible downgrade due to its Greek debt exposure. In afternoon trading, however, it recovered slightly to only a 9.7% drop.
Societe Generale of France fell 5.6%, while BNP Paribas was down 6%. In Germany, Commerzbank fell 7.5%. Shares in Royal Bank of Scotland fell by 5% in the UK.
The market has also been hit by news concerning the Markit purchasing managers’ index. It showed that eurozone manufacturing activity contracted at its fastest pace in two years last month.
Inspectors from the IMF, the EU, and the European Central Bank are gathering to decide whether or not to give Greece a much-needed bail-out instalment.
This comes as European leaders are under immense pressure to reign in the debt situation, as many are worried about contagion to Spain and Italy, and the results of a default on the single-currency eurozone.
The country needs the 8 billion euros instalment to avoid going bankrupt as soon as next month.