Greek crisis sends stock markets tumbling

London’s stock market fell to near a three-month low today as Greece’s plight again hit share prices in banks and other financial companies.

The FTSE 100 index of UK leading shares dropped as much as 67 points to 5647, after European finance ministers refused to grant Greece the next €12bn instalment of a rescue package agreed last year unless it agrees €28bn of new austerity measures that include tax increases, spending cuts and a largescale privatisation programme.

Eurozone finance ministers met for a second day today to discuss the crisis, which traders suggest may still result in Greece getting its money and receiving a second bailout in cooperation with the International Monetary Fund, though it is the prospect of no deal being agreed that is unsettling markets.

Worries about their exposure hit the shares of Barclays, Lloyds Banking Group and Royal Bank of Scotland, which all fell by about 2%. UK banks’ direct exposure is low compared to French and German banks, but the potential knock-on impact across all European banks is making investors nervous.

Shares in Lloyds Banking Group, which unveils a strategy review on June 30 that is expected to involve thousands of job losses, hit a seven month low as investors fretted over Greece.

Bank shares fell across Europe, while Italy’s leading MIB index opened more than 2% lower after ratings agency Moody’s warned it may reduce the country’s credit rating, echoing a similar warning by Standard and Poor’s over Italy last week.

Greece is said to need the next €12bn injection by the middle of next month to avoid a default on its debts, estimated now to have reached €340bn. Last night beleaguered prime minister George Papandreou insisted the country would not default and said he was determined to crack down on its mounting debts.

Mr Papandreou faces a vote of confidence tomorrow, which traders expect him to survive. A final decision on a possible second bailout is expected after more European talks next month.