**Falling confidence in Greece’s economic policies and ability to pay its debts have seen Greek shares slump 6%.**The decline came after the Fitch credit rating agency cut Greece’s rating to a 10-year low. Greek bond prices also fell as a result.
Fitch’s move underscores the fact that Greece’s debt is the most expensive to service in the eurozone.
Greece has the highest debt of the 16-member bloc - forecast at 125% of gross domestic product next year.
Fitch’s downgrade follows recent warnings by two other agencies that they were considering such a move.
“Very difficult”
Separately, on Monday the president of the European Central Bank (ECB) said Greece needed to take “courageous” measures.
“The situation in Greece is very difficult,” ECB chief Jean-Claude Trichet told the European Parliament’s economic committee.
“So this calls for very difficult, very courageous but absolutely necessary measures.”
Greece’s new government has acknowledged growing fears about its ability to pay its debts, fuelled by Dubai’s financial problems.
“Greece finds itself in an asphyxiating stranglehold to prod the government to undertake structural reforms”
Manos Hatzidakis, Pigasos
Finance Minister George Papaconstantinou has said the government is working to correct a “lack of credibility” in the financial markets.
Some analysts say Greece could at some point be unable to use its own government debt as collateral for borrowing from the ECB.
“Greece finds itself in an asphyxiating stranglehold to prod the government to undertake structural reforms and measures to combat tax evasion,” said Manos Hatzidakis, an analyst with brokerage firm Pigasos.
The financial blow came as the government struggled to settle two days of youth riots.
They mark the anniversary of the police shooting of a 15-year-old boy last year. That triggered widespread violence also fuelled by anger over the economy.
Governments and companies issue bonds to raise money on the financial markets.
Markets are worried about the vulnerability of government bonds following comments from Dubai’s government minister that it would not guarantee troubled property firm Dubai World’s debt.
Other countries seen as weak include the Republic of Ireland, Spain and Portugal.