European stock markets and the euro tumbled yesterday as Moody’s warned it will review all EU credit ratings after member states failed to deliver decisive measures to fix the eurozone crisis.
With last week’s summit headlines dominated by the British veto of plans for a new EU treaty to boost fiscal and economic integration, investors were sceptical about the steps actually announced, dealers said.
They said that as in previous summits, an initial positive reaction on Friday quickly gave way to pessimism that EU states can deliver what they promised while Moody’s warning completely dispelled any feel-good factor.
Italy was once again in the firing line, with investors selling shares down sharply although Rome did manage to raise fresh finance, albeit at sharply higher costs from the markets.
US stocks also fell, compounding the negative tone in Europe.
In London, the FTSE 100 index of top shares fell 1.83 per cent to 5,427.86 points, in Paris the CAC-40 slumped 2.61 per cent to 3,089.59 points and Frankfurt’s DAX 30 tumbled 3.36 per cent to 5,785.43 points.
Milan lost 3.79 per cent and Madrid was down 3.11 per cent.
The European single currency was down sharply at $1.3183 from $1.3384 in New York late Friday.
On Wall Street, the blue-chip Dow Jones Industrial Average was down 1.47 per cent while the tech-rich Nasdaq Composite shed 1.62 per cent.
Analysts said there remained many questions over last Friday’s EU summit in which 26 of the 27 EU member countries commited to tougher fiscal limits.
In London, Jordan Lambert at Spreadex said the markets ran “out of steam as comments by Moody’s dampen the upbeat tone provided by the fiscal unity plan on Friday.
“We look set to muddle along for some time until the European Central Bank eventually gives in to becoming the lender of last resort – which is the ultimate game changer the market is eager to hear,” Mr Lambert said.
“After days of talks, the EU Summit failed to make clear whether the euro will survive the crisis,” said Dan Reed at HB Markets.
“The only transparent outcome was that it changed the UK’s affiliation with Europe for the long term,” Mr Reed added.
“The combined potential firepower put forward to deal with the eurozone sovereign debt crisis still looks limited, should Italy and Spain run into serious problems,” IHS Global Insight chief European economist Howard Archer said.