A trader works on the floor of the New York Stock Exchange today, May 7, 2010. Stocks worldwide plunged as fears about Greece’s debt crisis went global. — Reuters picATHENS, May 7 — Stocks worldwide plunged as fears about Greece’s debt crisis went global, with investors seeing it as an omen of turmoil in other European economies and governments struggling to calm markets.

Group of Seven finance ministers were to discuss the situation in a conference call today after US Federal Reserve officials expressed concern and the White House said US President Barack Obama was watching developments closely.

Euro zone leaders were scheduled to meet for a special summit late today to put their political stamp of approval on the EU-IMF deal to release 110 billion euros (RM470 billion) over three years to help Greece overcome its debt and deficit crisis.

The German Parliament today approved its big share of the bailout. Italy’s Cabinet has given initial approval, and the Dutch Parliament was expected to vote for the package today.

Five German academics have filed a legal challenge to the challenge, however, reflecting widespread domestic opposition to the measure.

Chancellor Angela Merkel talked of a “battle” between governments and markets. EU monetary affairs chief Olli Rehn compared Greek insolvency to the financial crisis 18 months ago.

“Little did authorities of the United States know in September 2008 what the bankruptcy of investment bank Lehman Brothers would lead to,” Rehn wrote in a Finnish magazine.

“The consequence was that the world’s financial system was paralysed in a way that led to the biggest global recession since the 1930s. Consequences from Greece’s insolvency would be similar if not worse.”

French Prime Minister Francois Fillon said the action to save Greece would “defeat and put an end to speculation which has been unleashed against the country”, adding there was no reason for markets to take aim at indebted Spain and Portugal.

The European Central Bank was to hold a conference call with commercial banks today to gather opinions on the state of money markets. Euribor bank-to-bank lending rates reached their highest level in almost four months.

European stocks extended a three-week sell-off to 11 per cent after Asian stocks slumped. US stocks fell as much as 9 per cent in trading today, possibly partly due to a trading glitch, but recovered much of the loss and were expected to rebound today.

The market volatility caused by the Greek crisis might prompt China to move more slowly than expected to let the yuan appreciate, forex strategists said.

German Finance Minister Wolfgang Schaeuble told Parliament aid to Greece would uphold Germany’s post-war legacy of serving peace, 65 years after its “darkest chapter” in World War Two.

“The joint European currency, the joint European economic area were right,” he said. “There is no comparable alternative to them in the 21st century in the age of globalisation. That is why we must defend the joint European currency.”

The Greek Parliament backed an austerity plan yesterday, but selling accelerated across markets overnight after the European Central Bank said it had not considered buying government bonds to ease Greece’s debt crisis. Some investors had hoped it would be more active in calming markets.

European investment-grade corporate credit default swaps hit their widest levels in over a year, and there was a rise in the premium that investors demand to buy peripheral euro government bonds, like Spain’s or Portugal’s, rather than benchmark Bunds.

European bank shares extended losses and the cost of insuring their debt reached levels not seen since the height of the crisis in 2009.

Sterling hit a one-year low against the dollar and tumbled against the euro after UK general election results showed no party as a clear winner, raising the risk of stalemate that could hamper efforts to reduce the country’s huge public debt.

Japan’s Finance Minister Naoto Kan said the G7 finance ministers were unlikely to discuss joint intervention in markets to support the euro.

“To some degree this is a battle between the politicians and the markets,” Merkel said. “But I am firmly resolved — and I think all of my colleagues are too — to win this battle.”

Greece’s 30 billion euro austerity bill imposes years of hard measures in return for the joint rescue by the European Union and the International Monetary Fund.

After violent protests in Athens, one Greek newspaper praised the Parliament vote as “the politics of credibility”. But another daily called the plan a “slow death contract”.

“If it turns out that the economy is not able to withstand the measures, if growth falls much more than forecast there could be social unrest, forcing the government to consider alternative moves in its asset-liability management,” said RBS economist Silvio Beruzzo.

“This may include restructuring.”

ECB chief Jean-Claude Trichet dismissed the prospect of any euro zone debt default.

“Default is, for me, out of the question,” he said. — Reuters