Debt crisis: Markets slump ahead of emergency EU summit
EUROPEAN markets fell heavily on Wednesday morning as investors doubted an EU summit would lead to a solution of the eurozone's problems.
At 11am, the FTSE 100 was down 1.9pc, the French CAC had fallen 2.1pc, the German DAX had lost 1.8pc, the Spanish IBEX had dropped 2.1pc and the Italian MIB had shed 3pc.
The falls followed heavy sell-offs in Asian markets, where the Japanese Nasdaq closed down 2pc.
Spanish bond yields rose to cross the 6pc danger level, with Italian yields also up sharply.
European leaders will meet in Brussels later today with the shadow of a Greek exit from the euro and a Spanish banking crisis looming over them.
"Most are expecting no concrete solution out of the meeting, just a few ideas discussed on how to boost growth with no real commitment to carry them out," Craig Erlam, market analyst at Alpari, said.
Prime Minister Mariano Rajoy of Spain will meet newly elected French President Francois Hollande in Paris ahead of the evening summit to discuss policy positions.
At nearly all previous summits over the past two years, Mr Hollande's predecessor, Nicolas Sarkozy, met German Chancellor Angela Merkel beforehand to fix a strategy.
The new move highlights the differing stance between the two eurozone superpowers, as Mr Hollande pushes for the introduction of eurobonds and Ms Merkel resists the plan.
Christine Lagarde, head of the IMF said in London on Tuesday that "more needs to be done, particularly by way of fiscal liability sharing".
Mr Hollande has recently championed growth ahead of austerity, something the German leader does not agree with as the continent is weighed down by debt. The French leader is likely to have support from Italian counterpart Mario Monti and European Commission President Jose Manuel Barroso
Yesterday, Ms Merkel said she found it “astonishing” that her pro-austerity stance is the cause of controversy.
"[Euro bonds] are the wrong prescription at the wrong time with the wrong side-effects," Germany's deputy finance minister, Steffen Kampeter, said earlier this week.
The ongoing crisis in Greece is likely to be high on the agenda at the summit. The country goes back to the polls on June 17, with anti-austerity party Syriza tipped as the favourite to win. Its leader, Alexis Tsipras, has vowed to cancel the bailout agreement if he is elected to power, in a move that could throw the entire euro project into doubt.
Meanwhile, Spain is grappling with a banking crisis that would have claimed he country's fourth-largest lender if the government had not stepped in. Bankia was nationalised last week after Spain injected €4.5bn into it.
The country's economy minister, Luis de Guindos, said the lender now needs to strengthen its capital defenses by as much as €7.5bn. The Spanish government is set to outline on Wednesday its plan to restructure Bankia.