European stocks, euro hit by renewed tension

European stock markets plummeted yesterday and the euro also fell against the dollar, with sentiment dominated by uncertainty in the eurozone after weekend elections in France and Greece.

In London, the FTSE 100 index ended the day with a loss of 1.78 per cent at 5,554.55 points, after trading resumed following a long holiday weekend.

In Paris the CAC 40 lost 2.78 per cent to 3,124.80 points, while Frankfurt’s DAX 30 shed 1.90 per cent to 6,444.74 points.

Investors spent the day mulling the chances of a spike in eurozone tension as Greek politicians struggled to establish a workable ruling coalition and the European Union scheduled an exceptional growth meeting for May 23.

Greek stocks gave up another 3.62 per cent after falling by 6.67 per cent on Monday, and now finds themselves at a level last seen around 20 years ago.

In foreign exchange deals, the euro dropped to $1.3005 from $1.3052 in New York late on Monday.

Stock trading in New York was also weighed down by the eurozone tension, and at 1430 GMT, the Dow Jones Industrial Average was off by 0.92 per cent at 12,888.34 points.

The S&P 500 had fallen by 1.03 per cent to 1,355.45, while the tech-rich Nasdaq was off by 1.26 per cent at 2,920.36.

Pessimism generated by a Greek vote that repudiated austerity agreed to by parties that had negotiated a second rescue package from the European Union and International Monetary Fund (IMF) undermined market sentiment.

Greeks might have to head back to the polls if no coalition government can be formed.

And Capital Economics economist Ben May said: “There is a clear risk that a new election may not lead to a decisive outcome, leading Greece to withdraw from the bail-out deal and default” on its sovereign debt.

Interactive Investor derivatives chief Mike McCudden added: “With the sight of yet more roadblocks on the road to recovery for the eurozone, investors hoping for some positive surprises from the French and Greek elections have been left largely disappointed. We are seeing increased pressure on the euro as remaining confidence for the embattled group of nations goes out the window.”

Pressure increased on president-elect Francois Hollande to stand by France’s austerity commitments after ousting ring-wing incumbent Nicolas Sarkozy.

Mr Hollande has said that kickstarting European growth will be at the top of his agenda, putting him on a collision course with some EU leaders — like German Chancellor Angela Merkel — over Hollande’s vow to renegotiate the bloc’s fiscal pact.

Japan joined those raising concerns about Hollande’s plans yesterday, with Finance Minister Jun Azumi warning the next French president to pursue fiscal discipline.

“We want (France) to do what has been decided so far... I think it is impossible (for European countries) to give up on fiscal-rebuilding efforts,” Dow Jones Newswires quoted Mr Azumi as telling a news conference.