Markets dive as EU and IMF reach deal on Greece

News the EU and IMF have reached a deal on Greece which should prevent a default have failed to calm markets, as the beleagured nation faces a new round of austerity measures and a government reshuffle.

Markets across Europe plummeted this afternoon, with the EUROSTOXX 50 down 1.29%, the CAC 40 1.54% lower and the German Dax down 1.23%.

UK shares extended early losses, with the FTSE 100 falling nearly 100 points or 1.7%, to 5,647.

Olli Rehn, the EU’s economic commissioner, said the IMF deal will allow international lenders to disburse €12bn to Greece even without an agreement on a new €120bn bailout for Athens, avoiding a default that would have come as early as next month, the FT reports.

The IMF had insisted it could not pay its €3.3bn portion of the disbursement without the new bailout, but in recent days officials have backed down from the demand.

Rehn said a deal to distribute the new funds should be completed on Sunday at a meeting of eurozone finance ministers in Luxembourg.

Rehn added the €12bn payment would not come if the Greek parliament was unable to pass a series of new austerity measures negotiated just last month with Greek Prime Minister George Papandreou.

As a condition for all eurozone bailouts, recipient countries must agree to quarterly reviews of their finances and make adjustments in order to receive every tranche of aid.

Rehn said he expects an agreement on the bailout to be reached on 11 July, the next scheduled meeting of eurozone finance ministers in Brussels.

Papandreou failed yesterday to get agreement on austerity measures, and today announced reshuffle of the cabinet.