European elections fuel fears in markets

The main stock exchange in Athens slumped eight per cent as markets worried that Greece’s failure to form a government put further doubt over the country’s rescue, increasing speculation over the eventual break-up of the single currency.

The election of socialist Francois Hollande as France’s new president was widely expected but will add to growing expectations of a backlash against the austerity drive in Europe led by German chancellor Angela Merkel.

London markets were shut yesterday but could resume on the back foot today after slumping two per cent on Friday on fears the recovery in the United States is running out of steam.

Analysts fear the result of the Greek elections, with no party winning enough votes to form a government, has left the country in limbo, preventing reforms.

Anita Paluch, a trader at Gekko Global Markets, said: “Having rejected the austerity, the country finds itself in a spot from where it may be difficult to meet its obligations and this is what is spooking the markets at the moment – the possibility of a disorderly default of a member state.”

The developments also add to pressure on the Bank of England as it meets to decide whether to offer more emergency support for the UK economy this week.

Experts are divided over whether the Bank’s Monetary Policy Committee will increase its £325bn quantitative easing stock, after injecting £50bn in February. Interest rates are expected to be kept at a record low of 0.5 per cent.

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