Athens' fiscal woes drag European stocks lower

Eurostoxx 50: 2,748.01 (–22.11) Frankfurt DAX: 7,150.21 (–13.84) Paris CAC: 3,799.66 (–24.08):EUROPEAN SHARES fell to a three-month closing low yesterday on growing unease about the euro zone debt crisis, after a delay in the release of aid to Greece and a possible downgrade of Italy's credit rating.

Adding to uncertainty, the International Monetary Fund said it will have to be sure Greek reforms are on track and will be financed by the euro zone, before paying out its part of the next aid tranche for Athens.

“There seems to be a stand-off between euro zone finance ministers and Greece, and that is causing uncertainty about the next tranche of funds and encouraging risk aversion,” said Joshua Raymond, market strategist at City Index.

“Quite clearly finance ministers are trying to get Greece to start making tough and crucial decisions, regardless of the protests that are happening on the streets of Athens,” he said.

Italy’s banks were heavy fallers in the sector after Moody’s threatened to cut the country’s sovereign debt rating, saying structural weaknesses such as a rigid labour market pose a challenge to growth, and that higher rates may derail its economic recovery.

Barclays dropped 1.8 per cent to 252.6p, while Lloyds slid 2.6 per cent to 47.2p.

BNP Paribas dropped 0.9 per cent to €51.75.

Royal Bank of Scotland slumped 4.4 per cent to 38.5p. Britain’s biggest government-owned bank fell after the firm sold shares to fund employee bonuses. RBS placed about 354.6 million shares, according to terms of the deal obtained by Bloomberg News.

A Greek debt writedown may have consequences for the global banking system similar to those following the collapse of Lehman Brothers, Swedish newspaper Svenska Dagbladet cited European Central Bank executive board member Lorenzo Bini Smaghi as saying.

Gamesa, Europe’s second-largest wind turbine-maker, plunged 7.1 per cent to €5.55.

Charter International sank 25 per cent to 538.5p, for the biggest drop on the Stoxx 600. The industrial-equipment manufacturer fell after forecasting that 2011 profit will miss its previous estimates.

Banca Popolare di Milano Scrl tumbled 7.4 per cent to €1.63. – (Bloomberg/Reuters)