Dubai: The downgrading of Greek bonds to junk status has spurred fears that a second wave of economic chaos is about to hit.
If there is one thing bankers hate it's uncertainty. On Wednesday, that sentiment was in full view, sending world markets into a tailspin and dropping the value of the euro to its lowest point in a year against the dollar.
Domino effect
"It's like a domino effect," David Buick of BGC Partners in London said. The downgrade increases the likelihood of a double-dip recession "which we all hope to avoid," he added.
"This is a dangerous process," he said. "All the speculators out there — they're like rats up a drain pipe — will make those cracks [in the euro zone economies] into crevices."
Fuelling the decline on markets was the news that Greece will receive more aid from its European partners and the International Monetary Fund than expected.
Athens has said it can't pay debts coming due on May 19 without 45 billion euros (Dh219.7 billion) in bailout loans.
But Germany, which would be the biggest contributor to the bailout with some 8.4 billion euro, is insisting the Greek government adapts a severe austerity plan before Berlin writes a cheque.
Adding to the euro woes are fears that Portugal, also struggling to control its debts, will also seek a bailout. Two euro zone nations on the verge of bankruptcy is too much for markets to contemplate.
"If yields rise much further Portugal may, like Greece, be in a position where [borrowing] on the open market becomes just too expensive," warned Jane Foley, research director at Forex.com.
Asian and emerging-market stocks dropped for a second day yesterday as investors fled the markets.
In the UAE Dubai's DFM index dropped 1.89 per cent to 1,714.09, the lowest in about one month, and the ADX fell 0.9 per cent to 2,777.98.
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