Perilous Times
Markets fall despite eurozone rescue plan
European markets fell on continued eurozone debt fears as the region's
ministers agreed on a framework to raise up to €440bn (£365bn) to bail
out member countries in trouble.
By Angela Monaghan
Published: 9:47PM BST 08 Jun 2010
Investors remained jittery despite the creation of the European
Financial Stability Facility, a special purpose vehicle (SPV) which
would sell bonds, backed by national guarantees. The proceeds would be
used to provide emergency loans to states, should the necessity arise.
Despite the agreement, the rescue scheme will not become operational
until member states responsible for 90pc of the SPV's funding have
secured consent for the arrangement from their own domestic parliaments.
Laurence Boone, of Barclays Capital, said the governments of some
member states had effectively rubber-stamped the SPV already. "Germany,
along with Austria, Finland and the Netherlands have given up on
requiring national parliaments to vote before the SPV makes any loan,"
he said.
France and Luxembourg have also authorised their guarantees, but
combined that represents less than two-thirds of the vehicle's
shareholding.
Jean-Claude Juncker, Luxembourg's Prime Minister and the leader of the
Eurogroup, said he expected the vehicle to be operational "in the
course of June". However, it was not enough to soothe investors, and
the CAC 40 in France fell 1pc to 3380.36, while the German DAX was down
0.6pc at 5868.55.
Spain's IBEX 35 suffered a bigger fall, dropping 1.4pc to 8669.8. The
country has been deeply embroiled in a debt crisis that began in Greece
but subsequently spread to other countries in the eurozone with large
deficits.
Spain has already approved tough austerity plans designed to sharply
reduce its deficit and ease EU and market concerns. However, the
measures have angered public sector workers, thousands of whom went on
strike yesterday to protest measures which will include pay cuts and a
reduction in public investment.
The FTSE 100 also closed down 0.8pc at 5028.15 as the uncertainty in
Europe continued, and after Fitch, the ratings agency, issued a veiled
warning that the Coalition Government would have to do more than was
currently implied to reduce the deficit, or put Britain's AAA credit
rating at renewed risk.
The guarantees offered under the SPV are designed to last for three
years and account for the bulk of a €750bn package approved by eurozone
finance ministers in May.
On top of the €440bn from yesterday's agreement, €250bn has been
pledged by the International Monetary Fund. The European Commission
would provide a further €60bn.