THE EUROZONE crisis returned with a bang yesterday, with shares sliding and bond yields soaring, as fresh political troubles engulfed the bloc.
Yields on Spanish 10-year bonds rocketed up 23 basis points – a 4.42 per cent rise on the day – while their Italian equivalents added some 14 basis points – a 3.21 per cent jump.
The euro lost almost a percentage point versus the dollar, falling from $1.3648 to $1.3517 and reversing much of its recent gains. It lost 1.39 per cent against sterling, bringing it from £0.8692 to £0.8574.
The FTSEurofirst 300 index sank 1.5 per cent and the Euro STOXX 50 dived 3.1 per cent, both erasing all of their gains for the year. Spain’s Ibex dipped some 3.8 per cent, while the Italian FTSE Mib was down 4.5 per cent. The FTSE 100 fell 1.58 per cent.
Particularly hard hit were Italian banks, with five suffering such steep slides that trading was halted. These five banks were Unicredit, whose shares plummeted 8.29 per cent, along with Intesa Sanpaolo, UBI Banca, Banca Popolare Milano and Monti dei Paschi di Siena, which all lost over five per cent of their value.
These moves came after the German Chancellor was forced to come out in favour of embattled Spanish premier Mariano Rajoy, whose party was hit with a series of allegations.
Reports had alleged that Rajoy’s People’s Party operated a slush fund with money donated by construction industry bosses – allegations the Spanish PM flatly denies.
Markets were also spooked by a new surge in the polls for former Italian leader Silvio Berlusconi, after the 76-year old media tycoon promised a swathe of tax cuts if he was elected.
Recent polls suggest the AC Milan-owner is five or six percentage points behind his main centre-left rivals.
But JP Morgan’s Alex White said in a note that Berlusconi’s support tends to be understated by around three percentage points. White said the effect could be even more pronounced in an election cycle with such heightened tensions. This would leave the centre-left’s lead “well below the margin of comfort.”
Mario Monti slammed Berlusconi as a “snake charmer” and said the former premier was with his tax cut plans trying to sell a dream “more fantastic than Alice in Wonderland.”