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Europe close: Spain pushing Europe to the brink

Date: Wednesday 30 May 2012

Europe close: Spain pushing Europe to the brink

- Spain on the brink after central bank governor resigns
- Italy fails to hit target at bond auction
- Anti-bailout party leading opinion polls in Greece

FTSE-100: -1.74%
Dax-30: -1.81%
Stoxx 600: -1.55%
Cac-40: -2.24%
Ibex 35: -2.58%
FTSE MIB: 1.79%

The terrors of last winter are with us again as the resignation of the Governor of the Bank of Spain and a failed Italian debt auction saw markets throughout Europe plunge.

Bank of Spain Governor Miguel Angel Fernandez Ordonez resigned, before the end of his term, as criticism mounted of his handling of the nationalisation of the country’s third largest lender, Bankia.

Bankia could well be the bank that sinks Spain, where losses in the property and mortgage sector are thought to be around €140bn. The Financial Times reported the European Central Bank refused a scheme where Spain would issue new bonds, give them to Bankia, which would then in turn hand them over to the ECB as a swap for cash.

The FT’s report has since been denied but Bankia shares closed down 9%. The essential problem is that the Spanish government may not be able to support all the competing claims on its resources, both from the banking sector and the heavily indebted regional governments.

Italy meanwhile is feeling the backdraft from Spanish woes. The country had aimed to sell €6.25bn in five- and ten-year bonds today, it only shifted €5.73bn - both maturities went at higher interest rates than at a similar auction last month.

An opinion poll in Greece appeared to show the left-wing, anti-bailout party Syriza ahead of pro-bailout New Democracy as the country gears up for elections in June following an inconclusive vote earlier this month.

COMPANIES

More grim news on the corporate front. The benchmark Stoxx 600 fell 1.55% today with basic resources stocks down as both copper and oil prices dropped.

German chemicals giant BASF fell 2% after what its Chief Executive described as a “lack of dynamism in Asia”.

Europe’s biggest oil firm Royal Dutch Shell dropped 1.5% as futures contracts on a barrel of Brent crude dropped 2.9%.

OTHER MARKETS

The euro is having a torrid time, by 16:54 in London it was down 0.8% against the dollar at $1.2402

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