Europe back in crisis mode

Julian Harris
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THE EUROZONE came crashing back down to reality yesterday, as riots in Greece and worries over Spain saw markets turn red.

In Athens a general strike organised by trade unions was splintered by outbursts of violence between police and clusters of troublemakers among the protesters.

Molotov cocktails and other missiles were hurled at the police, who wielded batons and broke an earlier instruction to avoid firing tear gas at the gathered crowds.

And last night anti-austerity protests in Madrid also saw flashes of violence, with police firing rubber bullets. The state’s 2013 budget is published today.

Stock markets throughout Europe – and elsewhere in the world – nosedived yesterday, particularly in crisis-struck Eurozone states. The leading indices in Spain and Italy lost 3.9 per cent and 3.3 per cent respectively.

And Spanish borrowing costs soared, with the yield on 10-year bonds jumping above the psychologically important six per cent mark, rising nearly 32 basis points to 6.06 per cent.

“In Europe it’s another day, another riot,” commented IG’s David Madden, while Michael Hewson of CMC Markets added: “Images of tear gas and rioting protestors on TV screens don’t generally engender confidence in investors that EU leaders have control of the situation in Europe.”

Prior to the spike in Spanish yields, Prime Minister Mariano Rajoy told the Wall Street Journal that his government would extend its hand to international lenders if borrowing costs were “too high for too long”. Under such circumstances, “I can assure you 100 per cent that I would ask for this bailout,” Rajoy insisted.

The euro area’s prospects have darkened in recent days among uncertainty over whether, or when, Spain will apply for a bailout.

The uncertainty is seen as a block on the ability of the European Central Bank (ECB) to activate its bond-buying programme and reduce borrowing costs.

With Spain still burdened by a banking and housing crisis, there are also worries over splits in Europe’s commitment for a banking union that would pave the way for recapitalisation of troubled lenders.

Spain’s plight was highlighted in an updated statement from its central bank yesterday, which cut its forecast for 2013 to a still-optimistic prediction of 0.4 per cent growth.

And this morning economists at Ernst & Young have hit out at Eurozone leaders and slashed their own forecast for the single currency area.

“The broader policy response to the crisis has still fallen short of the game-changer needed to restore long-term stability,” the report says, forecasting virtually flat growth of just 0.1 per cent through next year, after a 0.5 per cent contraction this year.

Meanwhile, credit rating agency Moody’s yesterday reduced its outlook on the EU’s triple-A rating to negative, from stable, due to sharp economic slowdown in the region’s largest core economies.

One of those economies, France, is being weighed down by more than three million unemployed citizens, official data revealed yesterday.

The French jobless total edged up to 3.011m last month, the first time since 1999 that it has passed the three million mark.

And consumer confidence in France fell for a third consecutive month in September, separate data released by the Insee stats office revealed.

In fellow Eurozone state Italy retail sales fell for the fourth month running in July. Sales were down 3.2 per cent on a year earlier.