European stocks posted a weekly decline as Fitch Ratings downgraded Greece and Standard & Poor’s Ratings Services cut its outlook for Spain, sparking concern there will be more debt-grade reductions.
National Bank of Greece SA and Piraeus Bank SA slumped more than 19 percent, pacing declines in European banking shares, as Fitch followed the reduction of Greece’s sovereign debt rating by cutting five of the nation’s lenders. Telekom Austria AG tumbled 13 percent as the country’s former telephone monopoly said earnings will drop next year.
The Dow Jones STOXX 600 Index lost 1.6 percent this week, the steepest decline since Nov. 20. The reliability of sovereign credit is under increased scrutiny after Dubai World, a state-owned holding company, said Nov. 25 it would seek a standstill agreement on its debt. Spain had the outlook on its debt grade lowered to negative from stable by S&P on Dec. 9, a day after Fitch cut Greece’s rating to BBB+ from A-.
“Dubai was a fire drill,” said Philip Gijsels, a senior structured-equity strategist at Fortis Global Markets in Brussels. “Worse than Dubai is Greece and what it means for other countries. A failure of governments would be worse than banks’ bankruptcies because governments have acted as lenders of last resource in this crisis.”
National benchmark indexes fell in all western European countries except Iceland and Luxembourg. Germany’s DAX, the UK’s FTSE 100 and France’s CAC 40 all slipped 1.1 percent. Greece’s ASE Index plummeted 9.4 percent, the most in more than a year, and Spain’s IBEX 35 retreated 3.5 percent.
Greece, the lowest-rated country in the euro region, may be the first major nation in the EU to default on its debt since 1948, said Willem Buiter, the former Bank of England official who will join Citigroup Inc as its chief economist next month. The nation is heading for a budget deficit of 12.7 percent of GDP this year, the highest in the 27-nation bloc.
National Bank of Greece, the country’s largest lender, sank 20 percent, the most since October last year. Piraeus Bank, the fourth-biggest, fell 19 percent and EFG Eurobank Ergasias SA, the second-largest, slumped 18 percent.
Banco Santander SA, Spain’s biggest bank, retreated 6.6 percent. Bank of Ireland PLC and Allied Irish Banks PLC, the nation’s two largest lenders, sank 13 percent and 16 percent, respectively. Banks lost 4.4 percent this week, the worst performance among the 19 industry groups in the STOXX 600.
Greece and Ireland are among countries in an “intolerable” economic situation, which may lead to bailouts or even an exit from the euro area by the end of next year, according to Steve Barrow, head of G10 foreign-exchange strategy at Standard Bank PLC in London. “Countries like Ireland and Greece may not be able to grow out of the current crisis,” he wrote in a note.
Greek Prime Minister George Papandreou said his government was committed to taming the budget gap and Finance Minister George Papaconstantinou said there was “absolutely” no risk it will default.
EU rules are ambiguous on possible support for Greece. While the euro treaty bars governments from bailing out each other, another clause foresees financial assistance for countries in duress.
Fortis, the insurer that was once Belgium’s largest financial-services firm, dropped 8.6 percent, after Fitch said it may downgrade its rating to reflect the increased risk of holding Greek government bonds.
Telekom Austria sank 13 percent. The company said earnings before interest, tax, depreciation and amortization in 2010 will fall 11 percent to 1.6 billion euros (US$2.3 billion) from a forecast of 1.8 billion euros this year. S&P put Telekom Austria’s BBB+ long-term corporate credit rating on CreditWatch with negative implications.
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