Euro dithering hits US stocks

Julian Harris
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A LACK of political action to resolve the Eurozone crisis hit stocks across the pond yesterday, after German finance minister Wolfgang Schaeuble said that EU leaders “won’t have a definitive solution this weekend”.

Schauble spoke at London’s Chatham House before a dinner with chancellor George Osborne at Downing Street last night.

“The countdown to Cannes continues,” Osborne said yesterday. “The biggest boost to growth across the world – and for Britain – would be a resolution to the crisis in the Eurozone. Maintaining the momentum towards that will be the focus of my discussion with my international counterparts today.”

Stocks had risen earlier in the day as hopes grew that Europe would succumb to pressure from the G20 to stop the debt crisis from escalating out of control. But markets across the continent closed down as optimism faded.

US stocks also suffered yesterday, with the Dow Jones closing down 2.12 per cent. The CBOE Volatility index, Wall Street’s so-called fear gauge, rose 16 per cent to 32.82, its highest one-day jump since August.

Analysts fear that contagion is spreading considerably beyond Greece, threatening other sovereigns and highly-exposed banks. The spread between French 10-year yields and German 10-years expanded beyond 96 basis points at one point yesterday.

The yield on Italian 10-year bonds remained 5.8 per cent.

In its latest bid to hold down yields in troubled, peripheral states, the European Central Bank (ECB) bought €2.243bn worth of bonds between 6 October and 12 October, down from €2.312bn the previous week and taking the programme’s overall total to €165bn. Over half the ECB’s staff (55 per cent) feel that outgoing ECB president Jean-Claude Trichet has taken the Bank beyond its remit by allowing the interventions, a Reuters survey showed.

Nevertheless, more than half of those who thought the ECB had overstepped its mandate said the decisions taken were right given the circumstances.

ECB policymaker Juergen Stark said last night that the bank could not go any further in trying to stave off the crisis. Stark – whose decision to quit the ECB is thought to be in protest against the bond-buying – said: “To ask more of the ECB will challenge its independence.”