Reminders of Europe’s Debt Woes Unsettle Markets
By MATTHEW SALTMARSH
PARIS — A nationalist political swing in Finland and speculation about a possible restructuring of Greek debt put pressure on euro-zone assets Monday, as investors were reminded that the region’s sovereign crisis is not yet resolved.
Yields climbed on the bonds issued by euro-zone governments perceived to have the weakest budgetary positions, especially Greece, Portugal and Ireland. Spain came under pressure as well and saw its borrowing costs rise at a treasury bill auction.
The euro slipped to $1.4297 from $1.4430 late Friday.
The main stock indexes in Europe down with the FTSE in London falling 1.4 percent, the DAX in Frankfurt down 1.7 percent and the CAC-40 in Paris declining 2.2 percent.
Shares on Wall Street are also expected to open sharply lower after the Standard & Poor’s ratings firm said that it has revised its outlook for the United States to negative and said the course for handling the budget deficits was unclear. Bond prices turned lower, and yields rose to 3.43 percent from 3.41 percent late Friday.
In Europe, investors were responding to an election on Sunday in which Finnish voters ousted their government and gave a lift to a nationalist party that is skeptical of the financial bailouts of Ireland, Greece and the agreement, reached this month, to aid Portugal.
Those results could complicate Europe’s plans to rescue Portugal, according to analysts.
Separately, news reports over the weekend suggested that the German government has been floating the possibility of a voluntary restructuring of Greece’s sovereign debt, something that most investors see as inevitable. The reports appeared to refer to extending the duration of debt issues over a longer timeframe.
The French economy minister, Christine Lagarde, however, played down any talk of restructuring for Greece, saying that such a move would be “catastrophic.”
“There is no question of speaking of a Greek debt restructuring.” she told LCI television Monday.
Adam Cole, head of foreign exchange strategy at RBC Capital Markets in London, said the euro was being undermined in the near term by the uncertainty of the Finnish vote.
The conservative National Coalition Party won the election, but by a narrow margin over the left-leaning Social Democrats. Just behind them came the True Finns, an anti-immigration party that does not believe that Finland should rescue its European partners.
The Social Democrats have also called for changes to how those countries are financed.
The National Coalition, part of the outgoing center-right government and a strong advocate for European integration, will now have to invite others into coalition talks, raising questions about Finland’s support for rescue packages that need unanimous approval in the 17-member euro zone.
The election results are “likely to result in some noisy horse trading in the coming days,” Mr. Cole said in a research note. However, he added that “ultimately, it is unlikely that Finland will derail the Portuguese bailout process and there is in any case a fairly large ‘window’ before Portugal faces heavy redemption pressure in mid-June.”
At a sale in Madrid, the Spanish government was forced to pay substantially more to issue 12- and 18-month Treasury bills on Monday compared with last month, Reuters reported, amid concern over the Portuguese bailout and speculation about a Greek restructuring.
The benchmark Spanish 10-year issue yield rose by 13 basis points, pushing wider its spread over equivalent German bonds.
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