Financial markets in turmoil after Greek, French elections | Business| Economy and finance news from a German perspective | DW | 07.05.2012
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Financial markets in turmoil after Greek, French elections

World stock markets slumped on Monday after elections in Greece and France heightened uncertainty about the eurozone's ability to fix its debt crisis. Germany moved into the focus of investors seeking safety.

European equities plunged to their lowest levels in almost 5 months, reflecting investors' worries about anti-austerity forces gaining substantial political ground after elections in France and Greece.

The Euro STOXX 50 index of top eurozone bluechips was down 1.4 percent in morning trading - the lowest the indiex has been since late December 2011.

Stocks in Athens plummeted 7.6 percent after Greece's mainstream parties fell short of a governing majority, casting huge doubts over hard won agreements to save the debt-laden eurozone country from bankruptcy.

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Markets down after anti-austerity votes

Francois Duhen, equity strategist with CM-CIC Securities told Reuters news agency that Greece needed a coalition that "provides what was promised" to its international lenders.

Otherwise, Greece would go bankrupt with a "risk of contagion for Portugal and Spain."

In Paris, the French CAC 40 index was down over 1.5 percent Monday morning, amid concerns that the new French president, Francois Hollande, might stop the country's austerity program as he seeks to boost growth through higher government spending.

"With the growing influence of anti-austerity political blocs, tensions among the eurozone will intensify and a wave of re-negotiations of bailout programs may be sparked," Kintai Cheung, analyst at Credit Agricole told AFP news agency.

The bearish atmosphere for European stocks also sent markets in Spain and Portugal heading south, by 1.5 percent and 0.6 percent respectively in early trading, as well as in Germany where stocks slumped 1.6 percent.

Earlier on Monday, markets in Asia had already fallen sharply across the board, with shares in Japan faring the worst, nosediving 2.78 percent.

Flight to safety

In addition, the euro fell in Asian trading, skidding to 1.2954 against the US dollar - its lowest level since January. However, in European trading the single currency was able to recoup part of its losses.

In bond markets across Europe, the spread between French and German sovereign debt began to widen again, suggesting a flight to safety by investors from riskier France to safe haven Germany.

Amid fears that Francois Hollande's victory might derail the deficit-cutting plan of outgoing president Nicolas Sarkozy, interest rates on France's benchmark 10-year government bonds were rising, meaning that the country will have to pay more to borrow money.

By contrast, the yield, or rate of return, for investors on German sovereign debt hit a record low of 1.554 percent - down from the previous all-time low of 1.584 percent recorded last Friday.

uhe/gb (AFP, Reuters, AP, dpa)

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