It's all Greek as default fears bite

Yesterday the Treasurer, Wayne Swan, played down the risk global turmoil posed for Australia, saying the local economy had outperformed Europe and the US in a "reality check for the doomsayers that have been talking our economy down".

But Mr Swan admitted the mining boom had created a "patchwork economy", putting pressure on manufacturing, tourism and retail.

Markets have been shaken by concern Greece may default on its debt this week, and they slid on Friday as investors sought safe havens. The US Dow Jones index slumped more than 300 points, or 2.7 per cent, to 10,992.

Fears have been fuelled by talk the German government may block an ?8 billion ($10.4 billion) aid instalment unless it is convinced Athens has delivered on an unpopular pledge to slash spending and raise taxes.

Such a move would force Greece to default on its bonds.

The investment bank UBS said in a global downturn Australia's booming minerals sector meant it should avoid following the rest of the world into recession, although growth would slump and unemployment rise.

But the UBS economist Scott Haslem had no good news for the stricken retail sector, saying consumer reluctance to borrow and spend was consistent with households moving to cut debt and "could persist for a number of years".

Group of Seven finance ministers and central bankers from the world's biggest economies promised to "take all necessary actions to ensure the resilience of banking systems and financial markets", but detailed no new policies at a meeting in France.

Fears that European policy makers were failing to prevent a Greek default and contain debt woes last week prompted investors to sell stocks and pushed the euro to a six-month low against the US dollar. European bank and sovereign credit risk reached new highs as 10-year treasury and German bund yields fell to record lows on demand for a haven.

Germany moved to insulate its banks against a possible Greek default and Juergen Stark's resignation from the European Central Bank exposed policy rifts aggravating the turmoil. Such shifts highlight the biggest risk to international expansion since the collapse of Lehman Brothers sparked the global financial crisis.

The disarray drew fire from the G7 as the US Treasury Secretary, Timothy Geithner, urged the Europeans to get their act together. Canada's Finance Minister, Jim Flaherty, suggested Greece could quit the euro.