Investors demanding high premiums for holding Italian and Spanish bonds as fears of double-dip recession grow
Stock market panic selling led to shares falling across the world with the FTSE100 down 128 points. Photograph: Frank Baron for the Guardian
Europe's sovereign debt crisis exploded back into life on Tuesday, with markets across the continent rocked by a wave of panic selling amid renewed fears about the impact of savage austerity measures in Spain and Italy.
The mood of uneasy calm seen across Europe since the Greek bailout in February was shattered as financial markets took fright at evidence of a double-dip recession and growing popular opposition to welfare cuts and tax increases.
Italy and Spain, the eurozone's third and fourth biggest economies, were at the centre of the market turmoil, with investors demanding an increasingly high premium for holding their bonds.
"Spain is right in the centre of a European storm," admitted finance minister Luis de Guindos, who declined to rule out an eventual bailout but insisted it could be avoided.
In Italy, Mario Monti's coalition government is facing growing hostility to reforms of its labour market, while the sheer size of the country's public debt made it an obvious target for nervous traders. The prospect of Greek voters rejecting austerity and the French electorate denying Nicolas Sarkozy a second term as president was also weighing on the markets.
The Greek government said it would hold a general election on 6 May, with opinion polls showing support for the mainstream pro-austerity parties is too weak to allow them to form a government.
"Spain is a big focus right now and even Greece will be coming back into the picture as it looks for another tranche of aid, so this eurozone debt tragedy is not going away, but seems to be getting worse," said Daniel Hwang, senior currency strategist at Forex.com in New York.
Interest rates on 10-year Spanish bonds hit 6% for the first time since January, when Europe's leaders were battling to agree a bailout deal for Greece and secure the future of the eurozone. Shares in Madrid dropped by almost 3% to hit their lowest level since March 2009.
In Italy, share prices slumped by 5% on rumours that the government was preparing to downgrade its growth forecasts, and trading in the shares of several of its banks was suspended after they fell sharply.
Shares were also much lower on Wall Street, where the fallout from Europe exacerbated fears that the US recovery is petering out. Disappointment at last week's unemployment figures had already been weighing heavily on investor confidence.
The markets closed in New York with Wall Street completing a fifth successive day of decline, with the Dow Jones having lost 213 points. In London, the FTSE 100 closed down 128 points, at 5,595.55. Oil prices also fell sharply amid concerns about the prospects for growth on both sides of the Atlantic and in Asia, with the price of a barrel of crude falling by more than $2.
In contrast, safe haven assets such as gold, the US dollar and bonds in the US, Germany and Britain were all in demand. "The market went up on a wave of liquidity-induced euphoria, and as usual overshot. Now the clever boys have decided to get out," said Charles Dumas of Lombard Street Research.
Much more here.... http://www.guardian.co.uk/world/2012/apr...ic-selling
Not looking too good. Might want to get those gardens ready.