x Abu Dhabi, UAESunday 23 July 2017

Investors flee euro as Greek debt fears mount

Shares and the euro take a battering as worries mount about Greece defaulting on its debts.

The German share index DAX in Frankfurt fell below 5,000 before recovering yesterday.
The German share index DAX in Frankfurt fell below 5,000 before recovering yesterday.

Investors deserted the euro yesterday as global shares resumed their slide amid mounting concern about a possible default by Greece.

The sell-off comes ahead of a crucial few weeks for Greece as it strives to secure more financial assistance to keep its struggling economy afloat.

"Until then, fear is likely to be driven yet higher with markets increasingly pricing in a Greek default until proven wrong," wrote the Swedish Bank SEB in a research note yesterday.

The Stoxx Europe 600 was down 2.73 per cent at 218.46 during afternoon trading in London. London's FTSE 100 Index was down 2.20 per cent at 5,099.71. Frankfurt's Dax Index was 3.14 per cent lower at 5,026.83, and the CAC-40 Index in Paris was 4.13 per cent lower at 2,851.60.

Earlier in Asia, Japan's Nikkei 225 Stock Average fell 2.3 per cent, with Australia's S&P/ASX 200 Index losing 2.9 per cent. China's, South Korea's and Taiwan's markets were closed for a holiday.

Investors left the euro in droves. The currency reached a 10-year low against the yen and also slumped to a seven-month low against the US dollar. The euro fell 1.2 per cent to 104.66 yen, and edged 0.4 per cent lower to $1.3594 against the dollar.

Fuelling the negative sentiment were deepening worries that Greece could face a possible default on its debt.

Philipp Rösler, Germany's economy minister, was reported as saying that Europe could no longer rule out an "orderly default" for Greece.

This followed a report in the German magazine Der Spiegelon Saturday that the German government was preparing two contingency plans in the event of a Greek default.

A pledge by Greece on Sunday to make €2 billion (Dh10.02bn) of new budget cuts failed to calm market jitters.

Adding to the gloom surrounding the euro zone yesterday was speculation that several French banks could be downgraded by Moody's Investors Service this week because of their exposure to Greek debt.

As a result, shares in BNP Paribas, Société Générale and Crédit Agricole were among those leading the market slide.

UK banking shares also suffered after the Independent Commission on Banking made recommendations of extensive reform. It said the reforms, designed to separate retail activities, could have an additional cost of up to £3 billion (Dh17.48bn).

Yesterday's sell-off follows rockiness across financial markets in recent weeks because of worries about a slowdown in advanced economies and little hope of a breakthrough in the euro-zone debt crisis.

 

tarnold@thenational.ae