Euro, bank stocks hit by Greek default fears
Monday, September 12, 2011
LONDON (AP) — Mounting fears over the possibility of a Greek debt default and signs of division within Europe’s policymaking circles over how to deal with the crippling crisis combined Monday to send the euro briefly down to seven-month lows against the dollar and bank stocks plunging.
In morning trading, the euro had hit $1.3495 — its lowest level since the middle of February — before stabilizing somewhat to trade 0.1 percent lower at $1.3595.
The euro has fallen sharply from above $1.43 since the start of September. Signals from the European Central Bank that there won’t be any more interest rate rises over the coming months have combined with renewed concerns over the financial health of Greece to weigh on the currency.
Stock markets around the world have also started the week the way they ended last — down sharply. The Stoxx 50 index of blue-chip European shares tumbled 2.2 percent.
Bank shares were taking the brunt of the selling as investors worried about the potential implications of a Greek default on bank earnings, with many of the continent’s leading financial institutions, such as Deutsche Bank and BNP Paribas, down around 10 percent.
France’s Societe Generale, which was some 8 percent lower, tried to assuage investors Monday with a statement saying its exposure to the euro’s more imperilled economies is diminishing and that it was accelerating disposal and cost cutting plans to raise over (euro) 4 billion ($5.4 billion).
“The intensifying sell-off in both the euro and risk assets in general reflects heightened investor fear that Greece is on the verge of defaulting, which could plunge the weak global economy back into another Lehman-esque recession,” said Lee Hardman, an analyst at the Bank of Tokyo-Mitsubishi UFJ.
The shock resignation Friday of the ECB’s chief economist Juergen Stark sparked the latest bout of turmoil in financial markets. Though the ECB said his departure was due to “personal reasons,” investors think there’s more to it than that.
Stark has been a consistent skeptic over the bank’s purchases of government bonds in the markets. Though the program is designed to prevent the debt crisis from enveloping Italy and Spain in particular, it potentially exposes the ECB to the risk of huge losses on shaky bonds.
Disagreement over how to handle the debt crisis, which has already led to the bailout of three of the euro’s 17 members, has been cited as to one of the main reasons why it continues to flare up time and time again.
A suggestion Monday from the general secretary of German Chancellor Angela Merkel’s junior coalition partner that Greece could leave the eurozone has added to the tensions.
“In the final analysis, one also cannot rule out that Greece either must, or would want to, leave the eurozone,” Christian Lindner said in an interview on ZDF television.
Lindner’s comments echo those made by his leader Philipp Roesler that Greece may have to default and reports that the country is looking at how it can protect its banks.
“In case of emergency, the orderly bankruptcy of Greece must be part of that, if the necessary tools are available,” Roesler wrote in a guest commentary in Monday’s edition of Die Welt newspaper.
Greece is struggling to convince international creditors that it’s doing enough to get a handle on its mountain of debts in order to receive the next batch of money due from a multibillion bailout fund. At the weekend, the government announced it was imposing a two-year property tax to raise (euro) 2 billion ($2.8 billion) and plug a budget gap identified by the European Union and the International Monetary Fund.
Markets seem unconvinced that Greece will be able to avoid bankruptcy, especially in light of the latest musings from German policymakers.
“With German officials seemingly in destructive overdrive, as per all the public talk of preparing for a Greek default and even a Greek euro exit, markets can hardly be blamed for the latest charge for the bunker and tin hats,” said Marc Ostwald, market strategist at Monument Securities.
David Rising in Berlin contributed to this story.