European stock markets fall heavily on fresh bailout and recession fears
• London's FTSE 100 index closes down 3.5%
• Markets in Germany, France and Italy lose 5%
• Regional defeat for Merkel heightens debt crisis concerns
• IMF boss Christine Lagarde warns global economy on the brink
Larry Elliott, economics editor
guardian.co.uk, Monday 5
September 2011 19.12
Stock markets fell heavily on Monday as fresh concerns about Europe's debt crisis and evidence of a continent-wide drift towards recession prompted investor flight into assets perceived as risk free.
The value of the 100 leading shares on the London market fell by £49bn, extending the two day loss since the publication of poor American jobs figures last Friday to £82bn.
By the close of business in the City, the FTSE 100 index was down 189.45 points at 5102.58, a decline of 3.5%. Markets elsewhere in Europe suffered even bigger falls, with Germany's Dax index of leading shares shedding more than 5%. France and Italy also saw share price falls of around 5%.
Dealers said investors had been unsettled by reports of a rift between Athens and the International Monetary Fund over the terms of Greece's bailout and by a regional election defeat suffered by Angela Merkel's Christian Democrat party at the weekend. With public opinion in Germany strongly against Berlin bankrolling any future eurozone rescue packages, interest rates on both Italian and Spanish bonds rose to their highest level in a month.
The hunt for safe havens sent the price of gold above $1,900 an ounce while 10-year bond yields in Germany dropped to record lows of 1.83% at one point.
Reports from Berlin quoted Merkel as saying that the situation in Greece and Italy was "extremely fragile", echoing comments from Christine Lagarde, the managing director of the IMF. The former French finance minister warned that the global economy was on the brink of a new crisis.
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