European stocks close lower as Greek bailout hopes fade

European stock markets closed lower yesterday but the euro was steady in cautious trade as relief at a massive Greek debt bailout gave way to growing scepticism that the deal can really work.

Dealers said that after months of uncertainty, news of the rescue deal on Tuesday was a bit of an anti-climax given doubts about the underlying sums and with Greece’s economy seen as too weak to meet the targets set.

In London, the benchmark FTSE 100 index of leading companies closed down 0.20 per cent at 5,916.55 points. In Frankfurt, the DAX 30 lost 0.93 per cent at 6,843.87 points and in Paris the CAC 40 fell 0.52 per cent to 3,447.37 points.

Madrid lost 1.26 per cent and Milan gave up 0.92 per cent.

The European single currency was flat at $1.3238.

On Wall Street, stocks were easier, with the blue-chip Dow Jones Industrial Average fractionally down 0.24 per cent as the tech-rich Nasdaq Composite shed 0.41 per cent. International ratings agency Fitch said yesterday it now considered that a Greek debt default was “highly likely in the near term” as it cut the country’s rock-bottom CCC rating to C, one notch above the lowest at D.

A draft Greek law – part of the rescue implementation programme – separately showed that the public deficit this year will be 6.7 per cent of Gross Domestic Product, up from the previous target of 5.4 per cent.

The slipping figures do not inspire confidence in the success of the latest bailout and raise fresh doubts about other weaker eurozone countries struggling to stay afloat, dealers said.

News of a slowdown in eurozone private sector activity added to the negative tone, they added.

“Eased Greek default concerns are being replaced by recession worries in the region after a gauge of services and manufacturing activity unexpectedly fell into contraction territory,” Charles Schwab analysts said.

Karee Venema at Schaeffer’s Investment Research in New York said investors were in wait-and-see mode ahead of US housing data and with Greece on hold for the moment.

“Even though Greece has gotten away with it and not defaulted, eyes are still focused on the eurozone problems,” said Valbury Capital broker Jonathan Bristow, noting that worries remained over Italy and Spain’s deficit woes.

Dealers said that while the accord ticks all the boxes in terms of financing and Greek commitments, the nation’s economy remains in parlous state and Athens faces a giant task in sticking to the plan.

“The passing of the latest bailout plan for Greece, while a welcome relief to a market suffering from bailout fatigue, has to be tempered with the acceptance that the problem hasn’t gone away, and forpeople to think it has would be naive in the extreme,” said Michael Hewson, senior analyst at CMC Markets in London.