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Fitch warns of ‘cataclysmic’ euro collapse

The UK's FTSE 100 shied away from 5,700 after ratings agency Fitch warned Italian debt risked a meltdown of the single currency.

 
Fitch warns of ‘cataclysmic’ euro collapse

British and European markets fell back as the European Central Bank (ECB) was warned by ratings agency Fitch that the single currency could face meltdown unless Italian debt is reined in quickly.

The benchmark UK index of blue-chip shares fell 0.45%, or 26 points, to 5,671 and the Mid-250 index crept up 0.24%, or 25 points, to 10,373.

UK energy companies also fell following EDF’s announcement that it would cut gas prices by 5%. SSE (SSE.L) lost 37p, or 2.8%, to £12.64 and Centrica (CNA.L) shed 3.7p, or 1.3%, to 284p as profits could be squeezed when the firm is forced to trim its prices.

See the FTSE's performance and the index’s top winners and losers.

ECB could face ‘cataclysmic’ euro collapse

Ratings agency Fitch warned the ECB on Wednesday afternoon that it could face a ‘cataclysmic’ collapse of the euro if Italy doesn’t find a solution to its mounting public debt problems.

David Riley, head of sovereign ratings at Fitch, gave the stern warning as the agency may downgrade Italy in the coming weeks, following its decision not to cut France’s credit rating on Tuesday.

Italian and Spanish bond auctions will be closely watched on Thursday as the yield on Italian 10-year bonds closed above the perceived breaking point of 7.04%, and the yield on Spanish 10-year bonds ended Wednesday trade at 5.34%.

Eurozone stock markets also suffered losses on concerns about the region's stability: Germany’s DAX index lost 0.17% to 6,152, France's CAC 40 index shed 0.19% to 3,205, and the FTSEurofirst 300 index of top European shares fell 0.69% to 1,020.

The ECB’s actions came under further scrutiny as questions are being raised about whether the half a trillion euro issued to European banks last December has provided real support for the region’s economy. 

Angus Campbell, head of sales at Capital Spreads, said: ‘Markets reversed much of their gains from yesterday on concerns that European banks are hoarding cash as opposed to lending it, which could cause another credit crunch, locking up money markets as they did back in 2007. 

‘Following the ECB mass injection of cash last month banks have kept the money as cash to prop up their balance sheets rather than lending it for possible greater returns, in case they never see it again. The effect could lead to a freezing of the credit markets which will do nothing to help the eurozone which is likely currently in a recession.’

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7 comments so far. Why not have your say?

Mark22

Jan 11, 2012 at 18:47

Are these the same people who left France's rating unchanged? IftheEurogoesinto meltdown is France really a good bet?

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Ines

Jan 11, 2012 at 18:58

Fitch must have had a sharp pull on the lead from the French Govt!

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Keith Snell

Jan 11, 2012 at 19:26

Anything new about this, so Germany is not willing to bail out Greece let alone Italy so stating the obvious in very dramatic language is news worthy?

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Franco

Jan 11, 2012 at 20:26

The Euro was on course to replace the dollar as the world reserve currency and this is America's response. It was to be expected.

The next rival is the Chinese currency which will need a war to tackle and as we know Obama has just announced the first steps. What do you think " focusing on Asia" means, dudes?

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smoking gun

Jan 12, 2012 at 00:19

Isn't it about time that Merkel and Sarkozy swallow their pride and admit that things have gone gaga w.r.t. the Euro and Euro zone. If the Euro is going to collapse, surely they should admit it and face reality as the sooner they do the sooner things can be put right. To me it is not just greed here, it is crass stupidity to let things simmer on for longer than necessary. Remember even simmering will allow all the water to boil away and the a@#e of the pot will burn out or melt away.

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Jonathan

Jan 12, 2012 at 02:25

FTSE 100 at 5670 is still higher than it has been for a while. Probably more to do with the BoE printing money than a recovery in the economy,

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kenneth douglas

Jan 12, 2012 at 10:43

Pinky and Perky, (Merkel & Sarkozy) do not want to sort out the Euro mess until closer to their re-election, 'look guys, we have saved the world' so vote for us.

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