A healthcheck on banks failed to calm worries over Europe’s debt crisis as stock markets fell on Monday.
The Royal Bank of Scotland was down 3.8% and BNP Paribas 3.1% as financial shares were hit hard. The FTSE 100 saw a drop of 0.9% with France’s CAC 40 and Germany’s Dax down 1.4% and 1.9% respectively.
On Friday the European Banking Authority published results of a stress test on the finances of European banks. Eight of the banks tested failed the stress test on their finances while sixteen others were said to be “near a danger zone.”
The news has seen investors continue to plough money into gold with the price of the metal topping $1,600.00 for the first time recently.
Investors are also concerned with the failure of the Obama administration to agree a debt ceiling deal with the US in danger of defaulting on its debts unless new rules can be agreed by Congress to enable further money to be borrowed by Washington.
Thursdays sees eurozone leaders attending a summit to thrash out a second “bail-out” package for debt riddled Greece.
German Chancellor Angela Merken, said that private investors who would be contributing to the bailout would need to provide clear commitments and went on to describe the summit as “urgently necessary” and that she wanted “a result.”
John-Claude Trichet, head of the European Central Bank called for Governments to stick together and speak as one, saying that the debt crisis can be overcome if they all stick together.
Mr Trichet said:
“It is a question of will and determination. The countries of Europe have always demonstrated that they pull together when the challenges are very high.”
Mr Trichet also repeated that Greek bonds will not be accepted as collateral for loans if the countries debts are defaulted. However, an orderly default is believed to be the only way that the Greek debt crisis can be resolved by some economists.
Lee Hardman, Bank of Tokyo Analyst said:
“On the face of it, the tests highlight that the European banking sector is in better health than expected, although crucially investor concern will remain over the credibility of the tests given that the tests did not include an assessment of the impact of sovereign defaults.”
The euro also fell as dealers bought up Swiss francs and yen. In trading in Asia the euro fell at one point to a record low against the Swiss franc of 1.1365.
