Business World

Sunday 22 April 2018

Debt Crisis: Greek fears push shares to two-years lows

Jurgen Stark. Photo: Getty Images
Jurgen Stark. Photo: Getty Images

Philip Whiterow and reporters

European shares fell to a two-year low today while international stocks fell 2pc on growing speculation on a Greek default.

In addition, the cost of insuring European sovereign and bank debt rose to records on the expectations.

London’s FTSE was off over 2pc while Germany’s DAX was off over 3pc.

The euro tumbled to seven month lows and was trading $1.357 this morning as the markets prepared for a structured Greek default.

But some US shares erased losses buoyed by news of a $3.7bn (€2.7bn) acquisition by Broadcom of NetLogic Microsystems while Bank of America gained when it announced new cost cutting measure.

In Europe, though, things remained bleak.

Ben Potter, market strategist at IG Index, said: "The selling seen over the last few days is the market trying to tell us that all is not well and there's a serious risk of this crisis descending into chaos."

The mood soured on Friday following the resignation of Germany's top representative from the European Central Bank (ECB) but Greece was also weighing heavily on investors’ minds.

Jurgen Stark's departure highlighted deepening divisions within Europe over the handling of the eurozone debt crisis and sparked heavy falls in share prices.

While he was said to have left for personal reasons, markets interpreted the resignation as a protest against the recent ECB decision to buy Italian and Spanish government bonds.

A meeting of G7 member finance ministers last week added to the uncertainty as they ignored calls for a more concerted, unified response to the crisis and instead said that it is up to individual countries to sort themselves out.

Greece has to implement swingeing austerity measures to ensure it continues to receive EU bail-out funds, but with protests in the country mounting against the depth of the cuts, doubts are rising about whether it will even remain a member of the eurozone.

The Greek Government was forced to implement fresh austerity measures at the weekend.

France’s three biggest banks also fell 12pc on fears of a downgrade.

It is understood that French and Swiss banks have the biggest billion euro exposure to Greek sovereign debt.

The fall in French bank shares was enough for the country’s central bank governor Christian Noyer to row into the scene.

"Whatever the Greek scenario, and therefore whatever the provisions which have to be made, French banks have the means to cope," Mr Noyer said in a statement by the Bank of France.

Mr Potter said: "At the end of the day, there's just too much uncertainty. No one seems to have any ideas what is really going on. There's too many cooks in the kitchen with different political agendas."

In the UK, worries about the eurozone even overshadowed the eagerly-awaited report from the Government-appointed Vickers commission into reform of the banks.

Bank shares fell heavily after the report was published as the Independent Commission on Banking (ICB) unveiled a far-reaching reform package that will cost the industry up to £7bn a year.

The ICB vision for the sector, which should come into effect by 2019, includes ring-fencing banks' high street divisions to protect them from riskier investment arms.

Royal Bank of Scotland and Barclays shares were down by as much as 5pc at one stage before recovering later in the session.

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