Euro Fears Push Asian Stocks Down

 

Asian stock markets dropped overnight on fears that Spain will require a sovereign bailout and growing concerns Greece may miss austerity milestones and lose access to the bailout funds. Japan’s Nikkei 225 index fell 1.30%, South Korea’s Kospi dropped 2.32%, Hong Kong’s Hang Seng index was down 2.44%, whilst Australia’s ASX 200 index declined 1.53%.

This week, Greece retakes its position at the center of the European debt crisis as its creditors – IMF, EU and ECB – assess how far the country is from its bailout targets, raising once more concerns of its exit from the euro. Representatives from the European Commission, the European Central Bank and the International Monetary Fund are set to arrive in Greece tomorrow to consider the country’s actions to reduce its debt-to-GDP target to 120% by 2020. Concerns are growing that Greece is already set to miss that target which will risk the receiving further bailout money. This could prompt the country to a default which may precipitate its exit from the single currency.

The IMF, which indicated in March it won’t commit more money to Greece, will make a decision on its next disbursement in late August. The IMF has already signalled to European officials that it will stop paying further rescue aid to Greece. This was a point reiterated by German Vice Chancellor Philipp Roesler yesterday, who said “If Greece doesn’t fulfil those conditions, then there can be no more payments.”

The euro dropped to 94.71 yen in early Asian trade, its lowest level since November 2000 as Spanish Prime Minister Rajoy forecast a 2nd year of recession and Spain’s regions lined up to seek bailout funds from the central government. On Friday, Spain’s Valencia region requested the central government for financial help from a new rescue fund which resulted in Madrid’s borrowing costs jumping up to levels regarded as unsustainable. The yield on Spanish 10 year bonds jumped up 0.25% points to 7.28% and Spain’s Ibex stock index plummeted almost 6%, its worst single day decline in two years. Over 7% is deemed unsustainable by the markets with many analysts now seeing Spain in need of a sovereign rescue having just recently seen Spanish banks receive 100 billion euros in bailout money to bolster its banks as well as its regional governments.