Bouncing back - a bit
October 6, 2011
Stocks in Europe recouped some of their most recent losses on Wednesday with Frankfurt's DAX index leading the charge. Germany's main share index closed 4.5 percent higher at 5,473 points - still well adrift of the recent high-water mark set six days previously.
The CAC 40 in Paris also climbed by about 3.4 percent, with London's FTSE 100 gaining just over 3 percent.
Asked for a reason for the upswing, investors mostly pointed to closing statements from the latest meeting of eurozone finance ministers in Luxembourg, which at least implied that governments would soon consider propping up the banking sector financially.
"The market is getting a little more confident that policymakers are serious about tackling the problems," Richard Betty, a strategist for Standard Life Investments, told Reuters.
The International Monetary Fund on Wednesday reiterated its view that European governments should start thinking about how they could support the financial sector.
"We're not saying that the banks are weak, we're not saying that banks are in trouble, we're simply saying that no banking sector in the world can survive a general loss of confidence," the head of the IMF's European program, Antonio Borges, said.
The boost on the markets came despite several setbacks on Wednesday, as Greeks launched a nationwide strike protesting austerity measure, and amid a decision from ratings agency Moody's to downgrade Italy's creditworthiness by three notches. It also coincided with continued efforts from the French and Belgian governments to get the flawed Dexia moneylender back on its feet.
Dexia solution by Thursday, France says
Stricken Franco-Belgian bank Dexia - one of the most exposed to Greek sovereign debt in Europe - also recorded a minimal gain on Wednesday, but after hitting all-time lows in Tuesday trading, there was nowhere to go but up. The governments in Paris and Brussels have been working on a deal to save the bank and limit any fallout among other lenders.
"I think that [Thursday] a solution should be found," French Finance Minister Francois Baroin told RTL radio, hours after Belgian officials confirmed a deal with their French counterparts to offload the most noxious Dexia assets in a so-called "bad bank."
In Belgium, caretaker Prime Minister Yves Leterme told clients not to worry about their Dexia deposits, saying it would not be necessary to publicly guarantee their savings. According to the De Tijd newspaper, worried savers withdrew 300 million euros (roughly $400 million) on Tuesday.
Finance Minister Didier Reynders told parliament that Dexia would have to be merged with another bank in order to survive, adding that the decision process was "going to take hours or days; not weeks."
France's bigger banks - whose futures have also been dubbed uncertain of late - fared well in Wednesday's trading. Credit Agricole and BNP Paribas both surged by almost 10 percent, but both fell well short of negating the losses of the previous three days' trade.
Consensus only on need for decision
Much of Wednesday's optimism was attributed to an interview with the European Union's financial commissioner Olli Rehn published by the Financial Times late on Tuesday. After the two-day eurozone finance ministers meeting in Luxembourg, Rehn suggested that there was new willingness to financially support European banks.
"Capital positions of European banks must be reinforced to provide additional safety margins," Rehn told the FT. "This should be regarded as an integral part of the EU's comprehensive strategy to restore confidence and overcome the crisis."
Angela Merkel's response to this idea, however, was more lukewarm. After meeting with European Commission President Jose Manuel Barroso in Brussels, the German chancellor said that financial firewalls should be built, "if there is a common view that banks aren't sufficiently capitalized for the current market conditions."
German Finance Minister Wolfgang Schäuble said on Tuesday evening that not all of his eurozone counterparts had been prepared to discuss their national plans to prop up their banking sectors - and Merkel said on Wednesday that the issue should be discussed at the higher-level summit of EU leaders starting on October 28.
"I think time is running out - hence it should be decided quickly," the chancellor said.
Author: Mark Hallam (AP, dpa, Reuters)
Editor: Nancy Isenson