Spain protests and Greece strike prompt market sell-off

| September 26, 2012 | 0 Comments

By
Tanya Jefferies and Daily Mail Reporter

05:30 EST, 26 September 2012


|

09:13 EST, 26 September 2012

Financial markets have fallen sharply in reaction to political turmoil in Spain and a fresh strike in Greece against harsh economic conditions.

Police have clashed with protesters against spending cutbacks in Madrid, where the government is under increasing pressure to seek a bailout as its borrowing costs jump back to dangerously high levels.

Greece is also seeing its first major 24-hour strike since the election of a conservative-led coalition government earlier this year.

Unrest in Madrid: Spanish riot police battle protesters against spending cuts

Unrest in Madrid: Spanish riot police battle protesters against spending cuts

The FTSE 100 was down 93.4 points at 5,766.3 in mid-afternoon trading, while on the continent Germany’s DAX and France’s CAC 40 both saw 2 per cent wiped off their value. The Dow Jones in New York opened flat after heavy losses yesterday.

Spain’s 10-year borrowing costs rose to 5.96 per cent today. The euro has slid to 79.5p (€1.2574) against the pound and is also down against the U.S. dollar at $1.29.

The outbreak of protests in Spain and Greece has cast doubt on recent efforts to solve the eurozone debt crisis, including a scheme by the European Central Bank boss Mario Draghi to buy up the debt of struggling members.

Meanwhile, credit rating agency Standard Poor’s has warned the eurozone economy would shrink by 0.8 per cent this year and stagnate in 2013, then recover to grow 1.2 per cent in 2014.

Simon Denham of Capital Spreads said: ‘Spain is slowly becoming like Greece as the riots escalating in the country are slowly but surely resembling its smaller European counterpart. That is the main trigger for the whole crisis.

‘Another round of spending cuts are to be announced in the country’s latest budget tomorrow in order to appease the ruling elite in the EU so that they can qualify for the €100billion bailout earmarked for their banks, but trouble is brewing on the streets of Madrid.’

And he added: ‘Across Europe we can expect more social unrest as the austerity belt tightens. For a Prime Minister [Spain’s Mariano Rajoy] who was elected with a landslide majority it is staggering how quickly his popularity has just evaporated. Making tough decisions is no politician’s dream and in Greece and Spain, even the UK, you can see why.’

David Morrison, senior market strategist at GFT Markets, said: ‘Three weeks ago Mario Draghi announced that the European Central Bank stood ready to purchase the sovereign debt of troubled eurozone countries in unlimited quantities – subject to “conditions”.

‘Since then, investors have been second-guessing when Spain would finally bite the bullet, officially request a bailout from the EFSF/ESM and throw themselves on the troika’s [ECB/IMF/European Commission] pitchforks.

‘So far, Prime Minister Rajoy has held back, insisting that Spain is on track to sort out its own problems, and probably won’t even need all of the €100billion which it has managed to wangle out of the EU to shore up its crippled banking sector.

Opposition: Spanish government has seen its popularity dive after rounds of spending cuts

Opposition: Spanish government has seen its popularity dive after rounds of spending cuts

‘But yesterday’s anti-austerity protests in Madrid, together with today’s 24-hour strike in Greece, are both reminders that rampant unemployment and a general collapse in living standards make people desperate and angry.’

Michael Derks, chief strategist at FXPro, said: ‘Spanish finances remain deeply disturbing, but it is the increasingly vociferous push for separatism in some regions that is even more troubling.

‘Especially unsettling is the latest fracas between Prime Minister Rajoy and the Catalan president Artur Mas. The latter has been pushing hard for greater autonomy over the finances of his region, but this has been flatly rejected by Rajoy as being in violation of the constitution.

‘In response, Mas has now called for early elections, to be held on November 25, on a platform of greater self-determinism.’

Derks said the Spanish armed forces deeply resent the Catalan separatist movement, and some senior officers have threatened that anyone extolling the break-up of the Spanish state is committing high treason.

‘European leaders will be privately quaking in their boots. Catalan separatism and the ramifications for Spanish finances would make the Greek bailout look like a pleasurable morning stroll,’ he added.

German chancellor Angela Merkel and ECB boss Mario Draghi said the eurozone must ‘become more competitive and restore credibility’ after a meeting yesterday.

Merkel said Europe could only recover if troubled countries such as Greece, Spain and Italy pressed ahead with budget cuts and economic reforms.

‘We need to take a deep breath to overcome this crisis,’ she added.

Draghi told eurozone leaders to act following his pledge that the ECB will stand behind countries’ debts.

‘The current improvement in sentiment does not mean everything is solved,’ he said. ‘The ECB’s action can only be the bridge to the future.’

Former Italian prime minister Silvio Berlusconi said the crisis could result in ‘the end of the single currency and the destruction of Europe’.

There is growing speculation that Berlusconi will bid to make a comeback as leader of Italy in elections next spring. Current prime minister Mario Monti, drafted in to sort out the country’s debt problems, has said he will not run.

Fresh outcry: Greece is seeing its first major strike since the election of a conservative-led coalition government earlier this year

Fresh outcry: Greece is seeing its first major strike since the election of a conservative-led coalition government earlier this year

The comments below have not been moderated.

Keep on dreaming, DM and Europhobes, but remember that dreams seldom come true.

John S
,

Bromley, United Kingdom,
26/9/2012 15:39

Greece WILL have to leave the Euro it is the only way to get the economy going again.

zjfan
,

Bath, United Kingdom,
26/9/2012 13:37

These eurocrats live in cloud cuckoo land by not seeing their euro is doomed to failure as is the eurozone eventually. Just how long are they prepared to kick this damaged can down the road? It has already been going on for far too long. One size does not fit all. We should escape from the clutches of the eurozone as soon as possible but our government, for some unknown reason, is deaf to the clamour of the general populace on this point.

RogerP
,

Bedford, United Kingdom,
26/9/2012 13:19

What you mean the Eurozone crisis still isn’t over?? Must be time for another summit, number 23 I believe…

Ian the original
,

Newbury,
26/9/2012 13:14

It’ll take more than a deep breath to sort this out.They can’t protest their way back to prosperity but they may well protest themselves into a military coup.Then the real austerity begins.

Stewski
,

Doncaster, United Kingdom,
26/9/2012 13:13

Here we go again, absolutely ludicrous situation!

common sense
,

Solihull,
26/9/2012 12:17

people power will hopefully destroy the eu as it did communism. rock on spain and greece.

john
,

kouvola finland,
26/9/2012 12:06

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