Chinese shares on the Shanghai exchange plunged more than 7 percent, despite efforts by China’s central bank Saturday to calm investor fears.
The Hang Seng also finished the day down, along with key markets in South Korea and Australia, as well as Japan, where the Nikkei shed nearly 3 percent Monday.
Fears of contagion muted
After an 8-hour session, Greece’s Cabinet decided banks would remain shut for six business days and restrictions would be imposed on cash withdrawals. The Athens Stock Exchange will also be closed Monday. The developments follow Prime Minister Alexis Tsipras’ sudden weekend decision to call a referendum on European and International Monetary Fund proposals for Greek reforms in return for vital bailout funds.
The accelerating crisis has raised questions about whether Greece might withdraw from the 19-nation euro currency, a move dubbed Grexit.
“Even if a deal is somehow reached, the ability of Greece to implement agreed reforms is doubtful,” said IHS Global Insight economist Rajiv Biswas in a report.
Greek withdrawal from the euro could lower Asian economic growth by 0.3 percent next year due to disruption in trade and financial markets, Biswas said.
Globally, Greece’s brinksmanship with its creditors is unlikely to have as severe an impact as the financial panic set off by the collapse of Lehman Bros. in September 2008, economists said.
“Today, the European banks have shed much of their Greek debt and they have significantly increased their capital,” said Mark Zandi, chief economist at Moody’s Analytics.
“A Greek default and exit from the euro zone would be devastating to Greece’s economy, but no one else’s,” said Zandi. “So, the Greek standoff will be disconcerting to financial markets, but only temporarily.”
The European Central Bank has vowed to do whatever it takes to prevent a financial panic.
The ECB is a committed to buying 60 billion euros a month in bonds to push down interest rates and help euro zone economies. It could buy more and flood financial markets with cash to calm jittery investors.
“They stand ready to do whatever it takes,” said Jacob Kirkegaard, senior fellow at the Peterson Institute for International Economics.
Chinese rate cut
China’s rate cut, the fourth since November, appeared to be aimed at reassuring investors after a plunge in share prices last week, rather than boosting economic growth, analysts said.
Beijing cut its benchmark lending rate by 0.25 percentage point and freed up money for lending by lowering the reserves banks are required to hold.
The timing is “rather market-friendly” and appears to be meant to “provide a support to the market sentiment,” said Credit Suisse economists Dong Tao and Weishen Deng in a report. (VOA)