Markets react to second Greek bailout

EUROPE’s main markets reacted negatively yesterday to growing concern that a second bailout for Greece may not succeed in stemming the flow of the eurozone’s debt crisis.

Yesterday saw continuing uncertainty over the effectiveness of an expanded Greek rescue package and rising concern over the capital solidity of Italy’s main banks.

International rating agency, Moody’s said that it is considering downgrading 13 Italian banks due to them potentially being vulnerable if the country’s credit rating was cut. The announcement comes ahead of a major round of stress tests on Italy’s banks, to be conducted next month. Italian and Spanish bond yields rose yesterday on concern that the debt crisis could spread.

The European Banking Authority is updating its stress tests to take into account losses banks may face on their holdings of debt from crisis-hit countries, including Greece.

London’s FTSE was the only one of the main European exchanges to register growth, yesterday, albeit only by 0.4%; ending the week at 5,698 points. The DAX in Frankfurt dropped by 0.4%, to 7,121 points and the CAC in Paris was down by 0.1% at 3,785 points.

In Dublin, meanwhile, the ISEQ index of Irish shares was up by just under 0.3% at 2,883 points. The strongest upward movers here were the likes of drinks group C&C; recruitment specialist, CPL; Kenmare Resources, Providence Resources and paper/packaging group, Smurfit Kappa. The notable fallers comprised the usual strong players of Tullow Oil (down 11c) and Kerry Group (down by 19c).

In terms of the Irish banks, both Bank of Ireland and Irish Life & Permanent (IL&P) dropped by 1c — to 12c and 7c, respectively — while AIB was unchanged at 16c.

The nervousness surrounding the eurozone debt crisis also spread across the Atlantic, where Wall Street’s exchanges showed early hits, rather than growth on the back of better-than-expected economic data for the US.

“There’s anxiety in the market. You’re going to go from headline from headline. When you look at Europe, you have Greece, you have the Italian banks. This theme is going to be playing for a while. In the US, the economic figures are consistent with an anaemic recovery,” one US-based analyst told the Bloomberg news service.

Before the European markets opened yesterday, Tokyo closed up 0.8% while Hong Kong’s Hang Seng index was up by nearly 2%, to 22,172 points.