European Stocks Plummet Most in Six Months With Greece on Edge

29/06/2015 11:32 AST

European stocks plunged as Greece teeters on the brink of default after bailout talks fell apart.

The Stoxx Europe 600 Index tumbled 2.3 percent to 387.86 at 8:54 a.m. in London, as all but four shares declined. While the Athens Stock Exchange stayed shut on Monday, equities in the periphery tumbled. Spain’s IBEX 35 Index, Italy’s FTSE MIB Index and Portugal’s PSI 20 Index slid at least 3.7 percent. Germany’s DAX Index lost 3 percent.

Stocks are falling on concern Greece is heading closer to a euro exit after it closed its banks and imposed capital controls. Prime Minister Alexis Tsipras on Friday called for a July 5 referendum on austerity measures demanded by creditors. Greece’s current aid package expires tomorrow, when it also owes a payment to the International Monetary Fund.

“This episode showcases the structural flaws in the euro project and the limits of political will to hold it together,” said Michael Ingram, a London-based market strategist at BGC Partners. “Absent a complete capitulation from the troika, Greece will default on the IMF tomorrow and emergency liquidity assistance should be withdrawn on Wednesday. I can’t see anyone stepping in before Wednesday ahead of ELA withdrawal.”

The VStoxx Index of volatility expectations for the Euro Stoxx 50 Index surged 10 percent, poised for the the highest level in five months. Shock Move

European stock traders who went all-in last week speculating on a Greek resolution were caught unawares by Tsipras’s announcement. The Stoxx 600 rallied 2.9 percent last week, the most since April, amid optimism over a deal. The risk of potential contagion if Greece leaves the euro is roiling global markets. The region’s common currency tumbled on Monday, along with U.S. equity-index futures and Asian shares.

“Markets had a wait-and-see attitude for weeks, and investors had got more optimistic about the outcome in Greece,” said Yukio Ikehata, managing director and head of international sales trading at Daiwa Securities Co. in Tokyo. “Now that’s being reversed.”

All 19 Stoxx 600 groups fell, with banks and carmakers plummeting the most. Banco Comercial Portugues SA, Banca Monte dei Paschi di Siena SpA and Banco Popular Espanol SA plunged at least 6 percent. Among auto shares, PSA Peugeot Citroen and BMW AG dropped more than 3.7 percent each.

TUI AG sank 9.9 percent. Thomson Airways Ltd. and First Choice Holidays Plc, owned by TUI, said over the weekend that some of its customers were victims of a terror attack in Tunisia.

Bloomberg