The euro hovered near a three-week low on Friday and European stocks headed for their seventh straight weekly loss as worries about a Greek default kept investors away from riskier assets.
World stocks neared three-month lows, oil headed for its biggest weekly drop since early May as upheaval in Greece and the inability of eurozone policymakers to define the terms of a new rescue package soured investors’ appetite. The euro dropped 0.5% against the dollar at $1.4, while the MSCI world equity index fell 1.1% to trade near its lowest level since mid-March.
The aversion to risk taking also took its toll on commodities. Brent crude futures were $1.2 lower at $112.9 a barrel , while spot gold slipped to $1,524.1, heading for its second weekly drop.
Cabinet shaken, bank stocks up
Greek Prime Minister George Papandreou sacrificed his unpopular finance minister on Friday and put his main socialist party rival into the job just before a crucial Franco-German summit to discuss future aid to Athens. The elevation of defence minister Evangelos Venizelos to the finance ministry was aimed at securing party backing for crucial tax rises, spending cuts and sell-offs of public assets required for the EU and IMF to disburse loans to keep Greece afloat next month and avoid a default.
Greek banks rose by as much as 4% and the benchmark Athens index was up 2%.
Germany, france united on aid
The leaders of Germany and France said on Friday that they were united behind a new aid package for Greece that would include voluntary private sector participation on the basis of the so-called "Vienna Initiative".
German Chancellor Angela Merkel said this approach, based on the 2009 agreement by banks to maintain their exposures in central Europe at the height of the financial crisis, was a “good foundation” for a Greek deal. “The Vienna Initiative ... is a good foundation and I believe that we can move forward on this basis.”