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European, Asian Markets Tumble on Greek Default Fears

Traders watch their screens at the stock market in Frankfurt, Germany, Monday, Sept.12, 2011, when the German stock index DAX went down under 5000 points.

Stock prices plunged on many global markets Monday as investors worried that Greece might not be able to repay the loans used to rescue its troubled economy.

While Greece is not a particularly large economy, it has borrowed such large sums that a default might send a wave of damage through banks in many other nations.

The turmoil on world markets grows out of fear that Greece might be unable to pay back some large loans, and those worries grew after a German official said a default could not be ruled out.

Foreign banks that have made billions of dollars worth of loans to Greece could be badly hurt by a default, and many of those banks are in France. French bank and government officials tried to reassure markets that they have sufficient money to cover any expected losses.

But investors are apparently still worried that a Greek default might hurt French banks so badly that the French institutions would struggle to repay loans they hold from banks around the world, including the United States. A report that a key rating agency might downgrade some French banks further heightened the concerns.

One economic expert, New York University Professor Neil Barofsky, says the markets may be in turmoil for a while.

"You will continue to see this real crisis of confidence, continued concern. In a way it is a little bit like 2008, nobody is sure exactly what is going to happen if these dominoes start to fall. And I think it is kind of a scary place right now," Barofsky said.

Barofsky spoke on the Bloomberg financial news service.

Greece, Germany, France and 14 other nations share the euro currency, and that ties their economies, strengths and problems all together.

That is one reason Greek problems are raising concern about the financial soundness of the eurozone's third and fourth-largest economies, Italy and Spain.

The head of the European Central Bank, Jean-Claude Trichet, urged Greece to meet its obligations and ease the crisis.

He also tried to reassure investors that the global economy is not headed back into recession.

"We do not see a recession, in the cards, not at all. But we see a slowing down in comparison with what had been observed in the recent period," Trichet said.

Trichet spoke Monday, after meeting with central bankers from around the world. He said central banks are ready to take further actions to bolster the economy.

Watch a related report by Mil Arcega