European fears spark world market sell-off

 


World markets suffered a sell-off today amid fears that France and Holland will undermine a European treaty to tackle the debt crisis.

Nicolas Sarkozy was beaten in the first round of the French presidential elections by socialist rival Francois Hollande, who plans to renegotiate an agreement on limiting government spending to tackle the debt crisis.

In Holland, prime minister Mark Rutte tendered his government's resignation, paving the way for early elections after a minority party refused to back austerity plans.

The turmoil wiped £27.6 billion from the value of the FTSE 100 Index. It fell nearly 2%, or 106.6 points to 5665.6, while markets in Europe suffered sharper falls.

Chris Beauchamp, a market analyst at IG Index, said: "One potential change of government in the eurozone is bad enough, but with the Dutch government falling apart as well, investors have been well and truly spooked."

To add to the gloom, Spain has slipped back into recession, Germany's manufacturing sector shrank at its fastest rate for nearly three years, and China's manufacturing sector continued to decline, albeit at a slower pace than previously.

Meanwhile, a survey of the eurozone's manufacturing and services sectors showed further contraction in April, fuelling fears about the eurozone's economy.

Banks were among the biggest fallers in London, with Barclays down 4%, and taxpayer-backed Royal Bank of Scotland and Lloyds down 4% and 2% respectively.

Shavaz Dhalla, a trader at Spreadex, said: "Dismay could be a term used to describe global markets this afternoon as a series of poor economic data from the eurozone, exacerbated by news indicating that the Dutch government was close to collapse, brought global markets to their knees.

"This, coupled with the uncertainty regarding the potential for a new but less eurozone-friendly French president, caused investors to flee in the face of uncertainty."

The prospect that Mr Sarkozy will fail to win re-election spooked markets because he has been a key ally of German chancellor Angela Merkel, who has spearheaded the drive to hammer out an agreement to limit government spending.

All but two of the 27 countries in the European Union signed up to the "fiscal compact", with the UK among those to abstain.

Enforcing austerity on the eurozone at a time when it is struggling to grow is likely to prove difficult, with Spain and Italy already having to let deficit-reduction targets slip.

David Miller, a partner at Cheviot Asset Management, said: "If Sarkozy had won comfortably yesterday, it would have been business as usual, with France and Germany trying to hold the eurozone together.

"However, the new prospect of a new president and new approach to dealing with the eurozone crisis has made investors and European markets nervous.

"We'll see muddled markets until the final result is declared."

Meanwhile, in Holland, Mr Rutte failed to get support from a right-wing party for budget cuts that would bring the deficit under the EU limit of 3% of gross domestic product.

Spain's central bank says the country is now in a technical recession as the economy contracted 0.4% in the first quarter of the year following a 0.3% decline in the previous quarter. The government has said the economy is shrinking and forecasts it will contract 1.7% this year.

And a report on Chinese manufacturing suggested further declines in April, hitting mining stocks in the FTSE 100 Index.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
News
ebooksNow available in paperback
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Marketing Services Manager - (communications, testing, DM)

£32000 - £35000 per annum + benefits: Ashdown Group: Marketing Services Manage...

Guru Careers: Finance Account Manager

£Neg. (DOE) + Excellent Benefits: Guru Careers: A Finance Account Manager with...

Ashdown Group: Java Developer - Hertfordshire - £47,000 + bonus + benefits

£40000 - £470000 per annum + bonus: Ashdown Group: Java Developer / J2EE Devel...

Ashdown Group: Direct Marketing Manager - B2C, Financial Services - Slough

£45000 - £55000 per annum + Benefits: Ashdown Group: An exciting opportunity h...

Day In a Page

Homeless Veterans appeal: 'You look for someone who's an inspiration and try to be like them'

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Could cannabis oil reverse the effects of cancer?

Could cannabis oil reverse effects of cancer?

As a film following six patients receiving the controversial treatment is released, Kate Hilpern uncovers a very slippery issue
The Interview movie review: You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here

The Interview movie review

You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here
Serial mania has propelled podcasts into the cultural mainstream

How podcasts became mainstream

People have consumed gripping armchair investigation Serial with a relish typically reserved for box-set binges
Jesus Christ has become an unlikely pin-up for hipster marketing companies

Jesus Christ has become an unlikely pin-up

Kevin Lee Light, aka "Jesus", is the newest client of creative agency Mother while rival agency Anomaly has launched Sexy Jesus, depicting the Messiah in a series of Athena-style poses
Rosetta space mission voted most important scientific breakthrough of 2014

A memorable year for science – if not for mice

The most important scientific breakthroughs of 2014
Christmas cocktails to make you merry: From eggnog to Brown Betty and Rum Bumpo

Christmas cocktails to make you merry

Mulled wine is an essential seasonal treat. But now drinkers are rediscovering other traditional festive tipples. Angela Clutton raises a glass to Christmas cocktails
5 best activity trackers

Fitness technology: 5 best activity trackers

Up the ante in your regimen and change the habits of a lifetime with this wearable tech
Paul Scholes column: It's a little-known fact, but I have played one of the seven dwarves

Paul Scholes column

It's a little-known fact, but I have played one of the seven dwarves
Fifa's travelling circus once again steals limelight from real stars

Fifa's travelling circus once again steals limelight from real stars

Club World Cup kicked into the long grass by the continued farce surrounding Blatter, Garcia, Russia and Qatar
Frank Warren column: 2014 – boxing is back and winning new fans

Frank Warren: Boxing is back and winning new fans

2014 proves it's now one of sport's biggest hitters again
Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

Jeb Bush vs Hillary Clinton

Karen Tumulty explores the power dynamics of the two first families
Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

Stockholm is rivalling Silicon Valley

The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

Crucified Santa: Urban myth refuses to die

The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

The Boy in the Dress: On set with the stars

Walliams' story about a boy who goes to school in a dress will be shown this Christmas