Fears of a Greek exit from the eurozone turned up a notch on Monday as investors triggered a sell-off in European markets, leaving stocks across the continent in the red.
“The market is progressively pricing in the risk,” said Lefteris Farmakis, rates strategist at Nomura, “but not to the extent that is justified. There is more to come”.
News that Greece’s far-left Syriza party – which came second in elections a week ago – would not attend a last-ditch meeting to form a coalition sent the Athens General index tumbling 4.6 per cent to 584.04.
Political deadlock and the possibility of a second election in June have prompted European central bankers to discuss the possibility of a Greek exit.
The implications of an exit triggered fear across the markets, sending the FTSE Eurofirst 300 index down 1.8 per cent to its lowest point this year of 1,004.20.
Spain’s borrowing costs flared up and the spread between Spain’s benchmark bonds and German Bunds hit an all-time euro high of 486 basis points. The cost of insuring against a Spanish default also reached an all-time high. Five-year credit default swaps climbed to 533 basis points, according to data from Markit.
In Madrid, the Ibex 35 index plunged 2.7 per cent to 6,809.4, led by banking stocks.
Over the weekend some Spanish banks announced how much they planned to set aside as provision against bad property loans under new reforms.
Bankia led the fall, with shares falling 8.9 per cent to €1.89. Banco Popular was close behind, falling 4.4 per cent to €2.04, while Caixabank fell 3.8 per cent to €2.35. BBVA, Spain’s second-largest lender, fell 3.7 per cent to €5.05. Banco Santander, Europe’s biggest bank by assets, slid 3.0 per cent to €4.72.
Across Europe banks made some of the biggest losses with the FTSE Eurofirst 300 banks index falling 2.7 per cent to 359.48.
In Milan, the FTSE MIB fell 2.7 per cent to 13,660.87, led by Mediolanum. Shares in the Italian bancassurer tumbled 7 per cent to €2.89.
In Frankfurt, the Xetra Dax was down 1.9 per cent to 6,451.97, with Deutsche Bank among stocks leading the fall; its shares dropped 4.1 per cent to €29.88.
In Paris, the CAC 40 fell 2.3 per cent to its lowest close this year of 3,057.99.