Greece vows to rein in debt as markets buckle

European stock markets sagged Wednesday amid worries over the record high budget deficit in the Greek economy.

In Europe, the FTSE 100 index of leading British shares was down 13.89 points, or 0.3 per cent, at 5,209.24 while Germany's DAX fell 21.88 points, or 0.4 per cent, at 5,666.70. The CAC-40 was 21.77 points, or 0.6 per cent, lower at 3,763.53.

Sentiment in the market has been knocked in the last couple of days by worries about a global debt crisis. Moody's Investor Services warned the United States and Britain to get a grip on their public finances to avoid threats to their top triple-A credit ratings. Meanwhile, rival Fitch downgraded its rating on Greece to BBB plus with a negative outlook.

"Greece's debt downgrade will still be adding to worries about the exposure of European banks," said Arifa Sheikh-Usmani, equity trader at Spreadex.

Greece's new socialist government promised Wednesday to step up efforts to reduce the growing deficit.

"We are doing and will do everything necessary to control the giant deficit," Prime Minister George Papandreou said at a cabinet meeting, broadcast on state television.

"That is the only way Greece will not be in danger of losing sovereign rights."

Elected Oct. 4, Papandreou blames the previous conservative government for the country's fiscal problems. Cost-cutting measures include a 10 per cent reduction in operating costs for the public sector next year and a hiring freeze for government jobs, along with planned staff reduction through limited hiring in 2011.

Greek banks owe the European Central Bank in excess of $70 billion and the country's budget deficit is forecast to hit 12 per cent of GDP in 2010. Under European Union rules, member countries are forbidden to have deficits in excess of three per cent of GDP.

The Greek stock market has sold off all this week, and is down six per cent on Wednesday.

Asian exchanges lower

Earlier, investors in Asia were rattled after government figures showed that Japan grew far less than originally expected in the third quarter, at an annualized rate of 1.3 per cent instead of 4.8 per cent, as cautious companies slashed spending.

Japan's Nikkei 225 stock average fell 135.75 points, or 1.3 per cent, to 10,004.72, while Hong Kong's key index shed 318.76, or 1.4 per cent, to 21,741.76, and Shanghai's benchmark was off 1.7 per cent at 3,239.57.

Australia's market lost 0.7 per cent and Singapore's market was off 0.3 per cent.

The South Korean market bucked the trend and advanced 0.4 per cent to 1,634.17 after the International Monetary Fund raised the country's economic growth forecast for 2010. Taiwan's market also rose 0.4 per cent.