Europe Economy

FTSE, CAC, DAX Set to Fall; Euro Rescue Fund Boosted

European stocks were expected to open lower on Wednesday after euro zone officials agreed to boost the European Financial Stability Facility bailout fund and raised the possibility of asking the International Monetary Fund  for more assistance late on Tuesday.

London's FTSE was forecast to open lower by 49 points, Germany's DAX was called down by 35 points and the CAC 40 in Paris  was predicted to start the day 26 points lower.

Eurogroup chairman Jean-Claude Juncker said on Tuesday that euro zone ministers had agreed to insure the first 20-30 percent of new bond issues for heavily indebted nations and co-investment funds would be created to attract foreign investors to buy bonds. Juncker said both schemes would be operational by January and 250 billion euros  ($332.5 billion) would be available to leverage following a fresh round of funding for Greece; he said there was hope the IMF would match and support the new measures for the EFSF.

However, British newspaper The Guardian reported on its website on Wednesday that euro zone finance ministers were warned on Tuesday that Italy faces a liquidity crisis that "could then turn into a solvency crisis" with disastrous consequences for the euro zone and the economies of Germany and France. The report said Italian Prime Minister Mario Monti must go further to tackle tax evasion in Italy after he outlined his plans for fiscal reform to euro zone finance ministers on Tuesday.

Dow Jones reported that the IMF and Italy may start bailout talks next month for an aid package worth 400 billion euros, of which the Fund would provide 100 billion euros if the EFSF and the European Central Bank provide the remaining 300 billion euros, quoting senior euro zone and IMF officials.

However French Finance Minister Francois Baroin said, quoted by Reuters, that the only relationship "approved and reaffirmed" by Monti with the IMF was the acceptance of the monitoring proposed at a summit of EU leaders at the beginning of the month.

European Central Bank Governing Council Member Erkki Liikanen said the debt crisis in the euro zone could trigger a banking crisis if it is not resolved.  Liikanen told Finnish business daily Kauppalehti he believed there was overcapacity not only in the European banking sector, but "possibly" across the world.

European finance ministers will meet again in Brussels on Wednesday to discuss a "joint road map" promised by Angela Merkel and Nicholas Sarkozy last week.  British Chancellor George Osborne will also join the Brussels meeting, one day after his financial statement to Parliament where he was forced to admit the coalition government will not have balanced the budget by the next parliament.

The European Commission will announce plans for the reform of audit markets on Wednesday amid concerns that the market is dominated by the 'big four' of Deloitte, Ernst and Young, KPMG and PwC.  The FT reported overnight that their European operations could be split into separate audit and consulting arms.

In the UK, a national day of strikes by public sector workers could see two million workers protesting against government spending cuts and pension reforms. The strikes are expected to impact schools and border controls, with several international airlines cancelling scheduled flights to the UK.

Economic data to watch on Wednesday includes French PPI data for October at 7:45 UK time, German unemployment figures at 9:00 and euro area flash inflation for November at 10:00 London time.

Related Tags