FTSE falls below 5000 as Greece debt fears grow

London's blue chip shares index was down more than two per cent at 4964 mid-morning, with banks seeing sharp falls.

The Royal Bank of Scotland was down six per cent and Barclays and Lloyds were off five per cent.

The Dax in Frankfurt fell three per cent and the CAC 40 in France fell two per cent, while Asian markets also suffered sell-offs overnight.

The FTSE has suffered its worst quarter for nine years, with nearly 14 per cent wiped off its value. Britain and America have been calling for eurozone leaders to take swift and decisive action to deal with the economic crisis which is threatening the very existence of the single currency.

But eurozone finance ministers delayed a decision on paying Greece the next tranche of its £94.4 billion bailout money, sparking further doubts that the country will keep up with its debt repayments.

They cancelled a meeting planned for October 13 after Greece admitted it would fail to meet its tough deficit reduction targets.

A decision is not now expected until the second half of the month so Greece may not get its next loan tranche until next month. Greece had warned it would go bankrupt if it stopped receiving the rescue money.

With the grim economic news showing no sign of abating, Greek public sector workers took to the streets today to block several ministries in Athens to protest against austerity measures.

They disrupted talks with European Union and International Monetary Fund inspectors on the bail-out. The Greek government has admitted that it will miss this year's deficit target despite a series of tax rises, pension and wage cuts and a "labour reserve" plan to put tens of thousands of public sector workers on the road to redundancy.

But patience is running out with Athens and other eurozone leaders for failing to be bolder in dealing with the crisis. David Cameron stressed today that eurozone chiefs had to deal with the situation "extremely quickly" and Chancellor George Osborne flew to Luxembourg for a meeting of EU finance ministers.

"We've got to put the fire out, that is what William [Hague] and I and George Osborne are all saying," said the Prime Minister. "The Greek situation needs to be resolved, one way or another, and done extremely quickly."

While accepting that closer economic union was needed for the eurozone, he stressed that countries outside the single currency would need "safeguards" so the moves do not harm the single market.