Greek economy shrinks 1.8% in Q2

Greece’s economy contracted by a worse-than-expected 1.8% in the second quarter as consumers in the debt-laden country reined back spending.

The slowdown, which comes after its economy shrank 0.8% in the first quarter, was driven primarily by households slashing spending, with private consumption dropping 4.2% year-on-year.

European stock markets were all down this morning as investors mulled the wider implications for the eurozone, although they later staged a recovery with the FTSE breaking into positive territory around midday.

The acceleration of the economy's contraction comes after the Greek government implemented strict austerity measures in an effort to cut its huge deficit - a move which triggered angry riots on the streets of Athens.

The austerity measures were part of a pre-condition for a European bail-out package.

Last week, ECB chief Jean-Claude Trichet squashed speculation Greece should exit the euro to cure its economic ills.