European stocks continue to slide on eurozone crisis
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Shares in French banks took another dive on Tuesday amid rumours that China is refusing to buy Italian government bonds. France’s largest lender, BNP Paribas, which already saw its share price fall 13.67 per cent on Monday, saw the biggest drop at nearly 10 per cent in early trading in Paris. The bank is the most exposed to Italian debt.
Italy's finance minister is reported to have met with the head of China's largest sovereign wealth fund, CIC, last week as Rome tries to bring down soaring borrowing interest rates in a move aimed at reassuring skittish financial markets.
The eurozone is already in turmoil over rising expectations that Greece is set for a default despite new international efforts to resolve its debt crisis. European stocks slipped deeper into the red on Tuesday while the euro fell to 1.36 against the dollar.
US President Barack Obama warned overnight that the world economy would remain weak until the eurozone crisis was resolved. He said the US was working with European states and authorities to help draw up packages for vulnerable economies.
Meanwhile, German Chancellor Angela Merkel sought to ease fears over a possible Greek bankruptcy by saying the 17-nation eurozone had to stick together.
“The top priority is to avoid an uncontrolled insolvency, because that would not just affect Greece, and the danger that it hits everyone - or at least several countries - is very big," Merkel told German radio station RBB on Tuesday.
She stressed that the eurozone had to remain intact, warning that if Greece were to leave the group, others would swiftly follow.
Merkel's comments were seen as a rebuke to Germany’s Economy Minister Philipp Roesler who said in an opinion article on Monday that Europe could no longer rule out an "orderly default" for Greece.
The situation in Greece was also behind the dramatic drop in shares in three French banks on Monday. BNP, Societe General and Credit Agricole lost more than 10 per cent.
The falls were fuelled by rumours of a possible downgrade by Moody’s credit agency later this week. The agency warned three months ago that these banks could suffer because of their exposure to Greek sovereign debt.
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