European Markets Plunge 5% on Greek Referendum Worries

Devan Biswas
01 Nov, 2011
New York City

European markets plunged after Greece decided to seek a referendum on EU bailout terms. The surprise decision stunned the European markets with indexes plunging more than 5% in the region. Yields on Italian and Spanish bonds rose.

[R]4:30 PM Frankfurt – European markets plunged after Greece decided to seek a referendum on EU bailout terms. The surprise decision stunned the European markets with indexes plunging more than 5% in the region. Yields on Italian and Spanish bonds rose.[/R]

The sentiment in the European trading turned for worst only two days after when regional leaders finalized debt accord.

Greek Prime Minister George Papandreou said that he has decided t put the EU bailout deal to a referendum. The decision came as a shock to most investors and provoked sharp criticism from French and German leaders.

Papandreou is expected to talk to German Chancellor Angela Merkel later in the day and no date has been set for the vote. Greek Finance Minister Evangelos Venizelos said on Greek TV that the vote most likely set early next year.

Papandreou also said he will seek vote of confidence in parliament for the rest of his term that is schedule to expire in 2013 after one more member of his coalition resigned and shrunk his majority to 2 in a 300-member house.

Greece is expected to receive €8 billion bailout loan as early as mid-November and is expected to run out of money in early January when the vote may be held to decide the fate of austerity measures and bailout terms.

However, financial markets receded and the benchmark indexes plunged in active volume in Milan, Frankfurt, Paris and the rest of the European Union.

The attention quickly shifted to bond markets and the yields on 10-year Italian bonds rose to a record high of 6.26%. Spanish bond market yield also added 10 basis points and German bunds yields declined 5 basis points.

In Paris, the CAC-40 Index fell 176.77 or 5.6% to 3,066.07 and in Frankfurt the DAX Index dropped 368.5 or 6% to 5,772.79.

The indexes in Stockholm fell 4.8%, in Madrid dropped 4.9%, in Milan plunged 7% and in Zurich dropped 3.2%. The index in Athens fell 4.5% and in UK dropped 3.5%.

Banks plunged sharply on the worries that if the referendum rejects the EU bailout terms that will increase losses to banks. The uncertainty also weighed heavily on financial markets and on financial stocks.

Gainers & Losers

Deutsche Bank AG plunged 11.1% to €27.01, BNP Paribas SA fell 13% to €28.58 and Societe Generale SA tumbled 15.9% to €17.75.

Intesa Sao Paolo SpA declined 19 cents or 14% to €1.11 and UniCredit SpA decreased 10 cents to 75 cents.

HSBC Holdings plc decreased 3.5% to 525.80 pence and Barclays declined 10.2% or 175.45 pence.

BMW AG increased 6% to €55.36, Volkswagen AG fell 6.6% to €106.30 and Daimler AG declined 46.5% to €34.56.