Markets on a roller-coaster ride but hopes raised as Eurozone bailout plan for Greece edges nearer



Greek finance minister denies talks with IMF despite speculation

Stock markets have endured another roller-coaster day as brokers digest details of a rescue plan for the Eurozone being drawn up by finance ministers - and there are signs that the markets are improving.



Reports from the weekend suggested a £2.6trillion plan was being drawn up to allow Greece to escape repayment on half of its towering debt and to quadruple the size of Europe's bailout fund.



The International Monetary Fund (IMF) has been co-ordinating talks with leaders in Washington and has reportedly drawn up a plan aimed at providing a way for Greece to manage a default on its debt, which now stand at 160 per cent of its GDP.



And Banks rallied on hopes that a deal may be near with Barclays the biggest FTSE 100 riser, up 7 per cent.

The FTSE 100 index of leading shares opened down 2 per cent this morning but by the end of Monday there was a 22 point rise

It is thought the plan will include a 50 per cent write down to those debts, with private investors, notably eurozone banks, suffering huge losses on the Greek government debt they hold.

This morning the FTSE 100 Index opened below 5000, after a drop of more than 90 points, but later recovered to stand 52 points higher at 5118.7 - however by closing, the market was up 0.45 per cent or just 22.5 points.

European markets also moved forward with both the CAC-40 in Paris and Dax in Frankfurt posting gains of more than 2 per cent despite a closely watched survey of German business confidence sinking again in September.

Louise Cooper, markets analyst at BGC Partners, predicted a roller-coaster ride for markets while details of the plan are thrashed out.

She said: 'A sufficiently credible plan to solve the eurozone crisis will necessitate changes to treaties, laws, and not least the German constitution.



'There will be wobbles and uncertainty at every vote and stage of political implementation.'

According the BBC's Robert Peston, the deal could involve a write-down of half of Greece's massive government debt.

But Greek Finance Minister Evangelos Venizelos dismissed reports that he has discussed a scenario of an orderly default by Athens with International Monetary Fund Chief Christine Lagarde and European Central Bank head Jean-Claude Trichet.



'We have reached a point where there are reports about what has been said in a closed door meeting with the participation of only Mrs Lagarde, Mr Trichet and myself,' he said in a statement.

'What is absolutely sure is that there hasn't been and couldn't have been any discussion about the so-called scenario of an orderly default.'



However the International Monetary Fund last night issued an extraordinary warning that it might not have enough cash to stem the crisis engulfing the Eurozone, prompting fears that Britain could be forced to find billions more to bail out debt-stricken economies.

Chancellor George Osborne has refused to put British funds on the line for a new EU rescue scheme but he would be unable to resist a call from the IMF to do more.

Time for action: Chancellor George Osborne (left) will be under pressure to help fund the new scheme, but his predecessor Alistair Darling (right) says decisive action is needed



The dramatic development came as France was forced to deny speculation that it is on the brink of having to bail out its banking system.



Emergency plans are being drawn up for a £2.6trillion deal aimed at saving the euro by allowing Greece to default on its massive debts.



The funds would be used to create a ‘firewall’ around the most indebted Eurozone countries, allow for an ‘orderly’ Greek default on its towering debts, and bail out those European banks most at risk.

SURPRISE GOLD PLUNGE

Traders saw a further fall in the price of gold today as the traditional safe haven in times of economic turmoil continued its surprise descent.

The precious metal is down by more than 300 U.S. dollars per ounce in the last three weeks, from a record peak of 1921 U.S. dollars an ounce on September 6 to less than 1600 U.S. dollars today. Experts are at odds as to why gold and silver prices have fallen, with some citing a drop in global price pressures and others saying the commodity has been overbought.

CME Group, the world's largest futures market, has also increased the minimum investment value to cover itself amid market uncertainty.

The recent dive in economic confidence should inspire a flight to gold - as the metal tends to outperform other commodities in times of crisis and also acts as a hedge against inflation.

Julian Jessop, chief global economist at Capital Economics, said two of the pillars that supported investors' confidence in gold have been 'knocked away' - namely fears of a surge in inflation and a collapse in the U.S. dollar. He said: 'The 300 US dollar fall in the price of gold has caught most commentators by surprise - including us. ' Demand for gold as an inflation hedge has fallen as the global economy has slowed and other commodity prices have tumbled. '



Former Chancellor Alistair Darling warned yesterday that the world is facing a bigger economic crisis than it did three years ago.

‘The Greek crisis has been allowed to run on and on and on,’ Mr Darling said.



‘Only this weekend it appears the governments have realised it is only a matter of time before Greece defaults.

‘It is imperative the Eurozone countries take action now and not let it drag on for the next few weeks because the risk is it will bring down other countries with it.’



He added: ‘The situation today is more serious than it was three years ago. There are lessons to be learnt and they are not being learnt by those responsible at the moment.’

In a bid to head off a wave of selling when stock markets re-open today, France’s central bank insisted the country’s besieged lenders were strong enough to withstand a Greek debt default.



Bank of France governor Christian Noyer described as ‘preposterous’ claims that French lenders are facing a run on their deposits because of concerns over their £36billion exposure to Greece.



And he rejected reports that the French government was planning to use taxpayers’ cash to shore up the beleaguered banks.

Mr Osborne has warned that Europe’s political elite have just six weeks to tame the debt storm engulfing the 17-nation single currency – or risk pitching the global economy back into recession.

Following its meeting in Washington, the IMF warned that it could run out of cash if contagion spreads beyond the crippled periphery of the Eurozone.

Its £248billion bailout fund may not be big enough if the global economy plunges into the mire because of the debt crisis, according to IMF chief Christine Lagarde.

The watchdog’s current emergency fund ‘looks comfortable today but pales in comparison with the potential financing needs of vulnerable countries and crisis bystanders’, Mrs Lagarde warned.

Global leaders are in a race against time to shore up the Eurozone and prevent a Greek default from triggering a full-blown financial meltdown. ‘We need a big bazooka,’ said one senior official at the IMF.

World Bank chairman Bob Zoellick said: ‘[There is] the looming danger that failure to take decisive action in Europe and the United States may shake the entire global economy, throwing developing countries off track – and they are today’s engine of global growth. The key message is that we are closer to the edge.’

Nerve centre: International Monetary Fund's headquarters in Washington, D.C.

Greek tragedy: Students and teachers march during a protest in central Athens last week. Greece is swept by strikes amid new budget cuts imposed in the face of bankruptcy

The expected default by Greece on its £305billion of sovereign debt will be a huge blow to the credibility of the Eurozone and send shockwaves through the banking systems of Germany, France and Italy.

It will also add fuel to the debate about the viability of a single currency.

German finance minister Wolfgang Schäuble was highly critical of rescuing those countries that had been foolish enough to build up mountains of sovereign debt, arguing they should not be rewarded for their profligacy, saying: ‘You cannot cure an alcoholic by giving him alcohol.’



