Thursday 8 December 2016

Stock markets slump as fears mount over debt crisis

Independent.ie reporters

Published 18/07/2011 | 10:49

Stock markets fell today as confusion reigned in Europe about the continent’s debt crisis and how it can be contained.

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In the UK, the FTSE 100 index fell 0.9pc, France's Cac shed 1.4pc, and Germany's Dax was 1.3pc down as opposing views on how the crisis should be dealt with from the European Central Bank and the European Commission continued ahead of a key summit on Thursday.

Italian and Spanish bonds were also under pressure as the confusion continued.

The interest rate on the bonds for both countries was hovering around 6pc – a move to 7pc is considered bailout territory.

The latest round of European bank stress tests, which showed eight smaller banks failed, was not enough to instill confidence either.

Analysts believe the tests were too lax and also did not factor in the potential for a Greek sovereign default.

ECB President Jean-Claude Trichet reiterated its stance that that bank would not accept bonds from a nation that defaulted as collateral for loans in a move that could trigger a Lehman’s style crisis – in a week that a second bailout for Greece will be discussed.

“The governments need to speak with one voice on such complex and sensitive issues as the crisis," Mr Trichet said in an interview with Financial Times Deutschland.

"If a country defaults, we can no longer accept as normal eligible collateral defaulted bonds issued by the government of that country," he said.

"Because... this would impair our ability to be an anchor of confidence and stability.”

German Chancellor Angela Merkel has also called for more joined up-thinking in Europe but has told European leaders that a deal for Greece has to be finalised by Thursday.

Eurozone leaders meet in Brussels on July 21 to discuss a second bailout package for Greece and the financial stability of the euro area.

Sovereign debt risks are not just confined to Greece, Portugal and other members countries, and the European problem has only highlighted the potential for trouble in the United States.

Tanaiste Eamonn Gilmore said: "This talk around the place of default being offered as a potential solution to the problem, let’s be clear - if there’s default the ECB will pull the plug.

“The Irish government has always understood that that’s the position," he added speaking outside an EU foreign ministers’ meeting in Brussels.

Meanwhile, gold reached a high today as investors poured into commodities as the market nervousness continued.

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