European stocks posted their biggest weekly drop in two months as lawmakers failed to agree on how to contain the eurozone’s debt crisis and Italy’s and Spain’s borrowing costs jumped.
The benchmark STOXX Europe 600 Index dropped 4.6 percent this week as eurozone leaders continued to struggle to stop the sovereign-debt crisis from spreading to the currency zone’s larger economies.
“The macro outlook is currently at the top of the mountain of uncertainty,” said Daniel Weston, a portfolio adviser at Schroeder Equities GmbH. “There is a very foggy view of the political and financial environment, finding it difficult to accurately price in the future.”
German Chancellor Angela Merkel ruled out joint eurozone borrowing and a bigger role for the European Central Bank (ECB) in fighting the debt crisis this week. Backed by Germany, the ECB said asking it to rescue governments would compromise its independence and cause long-term damage to the 17-nation monetary union.
Germany failed to attract sufficient bids at an auction of benchmark 10-year bonds on Wednesday. Europe’s biggest economy failed to reach its maximum sales target of 6 billion euros (US$7.9 billion) at an auction of securities due in January 2022. The securities were sold at a yield of 1.98 percent.
Italy had to pay almost 7 percent to sell six-month bills at an auction on Friday, fanning investor concern that the world’s fourth-biggest borrower may struggle to finance its debt. Spain’s three-month borrowing costs more than doubled at an auction on Tuesday. The ECB has bought Italian and Spanish debt since Aug. 8 in a bid to stem surging borrowing costs.
Benchmark indices dropped in all of the 18 Western European markets. France’s CAC 40 Index fell 4.7 percent, the UK’s FTSE 100 Index lost 3.7 percent and Germany’s DAX tumbled 5.3 percent.
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