Tuesday 16 January 2018

Debt Crisis: European shares finish higher despite Italy downgrade by S&P

Greek finance minister Evangelos Venizelos. Photo: Getty Images
Greek finance minister Evangelos Venizelos. Photo: Getty Images

Independent.ie reporters

European stocks finished higher today after a shaky start as Greece described its debt talks with the EU/IMF as "productive" and on growing speculation that the US Federal Reserve will provide more stimulus to the economy.

Germany’s DAX closed up over 2.5pc while France’s CAC gained over 1.2pc despite ongoing pressure on French banks over their exposure to Greek debt.

London’s FTSE finished up 2pc.

Earlier in the day, Italy’s cost of borrowing rose to a record high after Standard & Poor’s cut the country’s credit rating.

The rating for Italy, which has one of Europe’s highest debt load, was lowered from A+ to A, S&P said in a statement.

The agency said the country's net general government debt is the highest among A-rated sovereigns, and now expects it to peak later and at a higher level than it previously anticipated.

“In our view, Italy’s economic growth prospects are weakening and we expect that Italy’s fragile governing coalition and policy differences within parliament will continue to limit the government’s ability to respond decisively to domestic and external macroeconomic challenges,” S&P said in a statement. "The measures included in and the implementation timeline of Italy's National Reform Plan will likely do little to boost Italy's economic performance, particularly against the backdrop of tightening financial conditions and the government's fiscal austerity program."

Elsewhere in Europe, Greek politicians and EU/IMF are locked in ongoing talks in a bid to secure new loans for the country which is teetering towards the edge of default.

But Greece’s two-year borrowing costs dropped to 57.84pc after government spokesman Ilias Mosialos said the country is not considering a referendum on leaving the euro and the country managed to sell bonds on the market.

The euro also erased earlier losses having weakened significantly earlier against Asian currencies.

In the US, there is growing speculation that Treasury Secretary Timothy Geithner will announce a new stimulus package as early as tomorrow.

When European markets closed, US stocks were also rising with the S&P 500 gaining more than 1pc at one point.

The market was boosted by good performances by utilities and healthcare shares.

The Dow and the Nasdaq were up 1pc.

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