Greece turmoil triggers market panic

ATHENS, Greece — For the moment, the Greek government can’t seem to please anyone. And the pressure is mounting quickly.

Global financial markets plunged Tuesday on new fears of a Greek default. European markets lost between 2 and 4.5 percent by Tuesday afternoon. Bank stocks and Germany’s DAX led the drop.

(Update: Stocks on Wall Street came roaring back late in the day on reports that EU leaders are exploring ways to recapitalize European banks).

Meanwhile, the troubled Mediterranean country braced for a massive strike Wednesday protesting austerity measures imposed to secure desperately needed international bailout funds.

Greece sparked new default concerns after revealing it would miss its deficit-reduction target. That revelation prompted European finance ministers Tuesday to delay signing off on more Greek aid.

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The aid in question is an $11 billion installment of a $150 billion loan from European partners and the International Monetary Fund, initially negotiated in May 2010. A second loan of the same size was agreed to in June but is awaiting ratification.

If the $11 billion is not made available by mid-November, Greece says it will be unable to pay its bills, possibly leading to a disorderly default that could shake the global economy.

This risk has escalated nervousness in financial markets. “The time for optimism has passed,” reported a Wall Street Journal market turmoil blog. Now it’s time to panic. That’s the sense running through trading floors Tuesday.”

Meanwhile, hundreds of thousands of public sector workers, 30,000 of whom are slated for layoffs as part of the government's austerity measures, begin a 24-hour general strike Wednesday that will close airports, offices and schools. Greeks weary of transit strikes and demonstrations — as well as cuts to pensions and salaries — say they can't take much more.

That puts even more pressure on Prime Minister George Papandreou's government to convince its lenders — the European Union and IMF — that it can slash spending.

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"I want to be optimistic but I can't," said Thanos Papapetrou, a 28-year-old researcher at the University of Athens, where student union-led lockouts of classrooms and faculty offices have essentially shut down the campus.

"I believe that we can make it if we really want to," said Papapetrou, who has been locked out of his office for several weeks. "The politicians, the parties, they just don't have the will. That's my opinion."

"If the situation is not resolved soon, the whole country will be on strike," he added. "People are very upset, very angry and they just can't take more."

The government stepped up its austerity plans in September after IMF auditors left the country, unhappy with the pace of reforms. In response, the ruling socialist party approved an unpopular new property tax, and announced public sector jobs cuts.

Finance Minister Evangelos Venizelos, in announcing the draft 2012 budget, said a longer and deeper recession than anticipated made it impossible to hit the deficit-reduction target. The Greek economy contracted at 5.5 percent of GDP in 2011 rather than the 3.8 percent contraction projected just a few months ago.

"The new macroeconomic developments did not allow us [to bridge] this 0.7 percent of GDP gap by the end of 2011," he said in a statement.

But he said that, in agreement with the IMF, the 2011 fiscal target was merged with the 2012 target.

"Therefore the creation of any different impressions that do not take into consideration the unfavorable macroeconomic conditions, the fiscal accomplishments of the past two years and all that we have agreed to with the troika, does not do justice to the huge effort of the Greek people," he said.

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