At the start of today’s trading on European exchanges, leading indices plummeted more than 4 percent, following sharp declines on American and Asian markets, as investors worldwide fear that the financial crisis will trigger a recession in the global economy.
The FTSEurofirst 300 index of leading European stocks fell 4.1 percent this morning, to 962 points, close to its lowest level in four years. The London FTSE index, Paris CAC, and Frankfurt DAX index are currently down more than 6 percent. After the prices of shares of some British banks fell more than 30 percent yesterday due to fears that some may fail, the British government announced today a package of measures to rescue banks, which includes injecting £50 billion of budget money into the largest financial institutions.
"Improving liquidity in the market could, we hope, stimulate interbank lending and restore confidence in the system. However, if that does not help, what next? A coordinated reduction in interest rates by the largest central banks seems to be the next logical step, but after that, there is nothing more that can be done," says Chris Hossasin, director at ODL Securities.
Other European governments are also intervening, as Spanish Prime Minister Zapatero announced yesterday that the amount of deposits guaranteed by the state will increase to €100,000, and a fund of €30 billion will be established to buy assets from banks to enable smooth lending to the economy. All these measures have so far only alleviated the pressure on the financial sector across Europe. The share price of the Royal Bank of Scotland rose nearly 10 percent this morning, while HBOS shares increased by 20 percent after the Commonwealth Bank agreed to buy that British bank and its Australian subsidiary for just $1.5 billion.
