European markets tumbled on Wednesday amid mounting fears that Greece will exit the euro area once a new government takes charge in Athens after next month's elections. Investors also awaited signs of fresh policy announcements out of the informal EU summit in Brussels.
The Stoxx Europe 600 index rose by 2.1% to end at 239.51, the worst day since April 23. The drop erased a 1.9% gain on Tuesday that was the biggest one-day advance seen since April 17.
Banks and resource stocks led a broad decline for European equities.
The German DAX 30 index slipped 2.3% to close at 6,285.75 while London’s FTSE 100 index fell 2.5% to 5,266.41. The French CAC 40 index dropped 2.6% to 3,003.27.
The Spain IBEX 35 index was down 3.3% at 6,440.50 and the FTSE MIB Italy index dropped 3.7% to 12,960.87.
Former Greek Prime Minister Lucas Papademos was quoted as saying that Greece was making contingency plans for an exit from the euro, and warned of the high costs associated with such a move.
However, Papademos later clarified those comments, saying he wasn’t aware of any specific preparations underway in Greece or elsewhere
in Europe or among its institutions for the country to leave the euro bloc.
The fear is that an exit by Greece would spill over to bigger vulnerable nations such as Spain and Italy, which could shake the foundation of the currency bloc. European banks carry a total exposure to Greece of 1 trillion euros and that an exit could trigger a run on deposits.
Reports also suggested that Eurozone officials have told members of the currency union to prepare contingency plans in case of a Greek exit.
Spain’s Finance Minister Luis de Guindos was to address Parliament to lay out the government’s rescue plan for ailing lender Bankia, with details
on the size and type of capital injection it needs.
Shares of Carrefour SA jumped after Credit Suisse upgraded the retailer to an outperform rating from underperform and lifted its price target.
Shares of Burberry Group Plc slipped in London, after the luxury-goods group reported full-year results.
Adjusted pretax profit was in line with analysts’ expectations, while revenue rose 24%, boosted by Asia demand. The company said that it would invest in opening bigger stores to drive further growth.