Nervous investors sold off European equities yesterday in the face of fears that Ireland’s debt and deficit difficulties will force Portugal and Spain to follow its lead and appeal for outside financial help.
Market sentiment was unsettled ahead of what could be an announcement tomorrow that Ireland would receive a rescue package worth around €85 billion to help it stabilise its public finances and troubled banking sector.
Ireland asked for assistance from the European Union and the International Monetary Fund last week but the initiative has failed to calm financial markets.
Borrowing costs for fellow eurozone members Portugal and Spain, both of which are seen as financially vulnerable, have risen sharply as investors demand ever higher rates for agreeing to buy debt from the two governments.
That has revived speculation that Lisbon and Madrid will also have to appeal for a bailout, despite vigorous protests in both capitals that no such assistance is needed.
In such a climate, European stock exchanges lost ground yesterday, with the London FTSE 100 index shedding 0.53 per cent to close at 5,668.70 points.
In Paris the CAC 40 fell 0.85 per cent to 3,728.65 points while in Frankfurt the DAX lost 0.45 per cent and closed at 6,848.98 points.
Elsewhere, Milan fell 0.54 per cent, Amsterdam 0.74 per cent, Lisbon 0.61 per cent, Madrid 1.80 per cent and the Swiss Market Index 0.29 per cent.
“Once again the euro area appears to have arrived at a pivotal moment,” said James Nixon of Société Générale bank.
“Macro fundamentals appear to have gone out the window. In their place is the growing realisation that the single currency’s fundamental flaws are now laid bare. Without internal fiscal transfers the euro area is going to really struggle.”
US stocks markets fell yesterday, with a holiday-thinned rank of traders taking their cue from European bourses.
The blue-chip Dow Jones Industrial Average was down 0.75 per cent at 11,103.05 points at mid-day, when the Nasdaq had lost 0.25 per cent to reach 2,537.87 points.
Concerns about Chinese inflation, tensions on the Korean Peninsula, and Europe’s debt woes weighed on US traders coming back from the Thanksgiving holiday for a shortened day’s trade.
Asian stock markets were mixed in quiet trade overshadowed by tensions on the Korean peninsula and the eurozone’s debt crisis.