MercoPress. South Atlantic News Agency

Greek Aid Package Hard to Sell: Stock Markets World Wide Fall Sharply

The Euro dropped to a 13 –month low against the US dollar

Stock markets fell sharply Tuesday as concerns about high levels of European government debt continue to shake investor confidence. The Euro fell to a 13-month-low against the dollar, dropping to 1.3004, after earlier slipping below the 1.30 mark.

The slides came despite an agreement reached over the weekend to provide Greece with 110 billion Euro three-year bailout package. European Union (EU) leaders had hoped the rescue package would restore investor confidence.

United States stock markets had their worst session in three months, with the Dow Jones (INDEXDJX:.DJI) falling by 2%, the tech-based Nasdaq (INDEXNASDAQ:.IXIC) by 2.98% and the S&P 500 (INDEXSP:.INX) by 2.38%.

Reflecting the US and China’s credit squeeze, Latin American markets also suffered the impact of global uncertainty: Brazil Bovespa was down 3.35%; Argentina’s Merval, 3.67%; Mexico’s IPC, 2.17% and Chile’s IPSA, 07%.

Results came after drops earlier in the day in Europe. In both London and Frankfurt, the leading share indexes closed down 2.6%, while in Paris the main index lost 3.6%. Shares in Athens closed down 6.7%.

There have also been worries that other European countries, such as Portugal and Spain, may also find it difficult to raise enough money to service their high budget deficits. The cost of government borrowing rose in both countries on Tuesday as a result.

However, the International Monetary Fund (IMF) rejected speculation Spain was seeking a loan, saying there was “no truth” to the claims. Global stock markets have been hit in recent weeks by concerns that Greece would be unable to raise enough money to pay off its debts.

Despite the massive loan package agreed by the Eurozone and the IMF, doubts still remain about whether the country will be able to raise taxes and cut spending enough to address its longer-term debt problems.

Portugal and Spain had their credit rating downgraded last week, and any further downgrades would raise the cost of future government borrowing even further, analysts warn. Spanish Prime Minister José Luis Rodríguez Zapatero moved to calm investors by saying his country had a lower debt-to-GDP ratio than the European average. Spain's debt-to-GDP ratio is just over 52%, compared with Greece's 115%.

He dismissed market rumours that Spain was looking to the IMF for aid as “absolute madness” and ”intolerable”.