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European debt burdens rattle markets Shares fall on eurozone debt and world economy fears
(40 minutes later)
European shares are lower in afternoon trading, as concerns continue about the high level of eurozone debt. US and European shares have both fallen as concerns continue about the high level of eurozone debt, as well as the risk of a return to recession on both sides of the Atlantic.
The UK's FTSE index had lost 0.1%, after rising 1.4% earlier. France's Cac had shed 1.2% and Germany's Dax 1.4%. Both were earlier up 1%. Wall Street's main Dow Jones index fell 2.5% in early trading, while France's Cac was down by 1.2% and Germany's Dax 1.4%. The UK's FTSE was flat.
Shares had earlier declined in Asia, with Japan's Nikkei 225 index down 2%. Banking stocks again notched up the biggest declines amid fears over their exposure to eurozone national debt.
World Bank President Robert Zoellick told the BBC that eurozone leaders had to do more than simply continue to bail out struggling member states. Data has also shown economic weakness.
US stocks are expected to open lower later. Economy fears
The global stock market turmoil comes in reaction to a continuing series of bad economic figures from the US and Europe.
In the US, data out last week showed that no new jobs were added to the US economy in August.
To make matters worse, the White House warned that the unemployment rate in the US was likely to stay at about 9% till the end of 2012.
President Barack Obama is scheduled to deliver a key speech on 8 September to outline his much-anticipated jobs creation plan.
In Europe, figures on Monday by research group Markit showed that service sector activity in the UK fell by its largest amount in more than 10 years in August, while business confidence in the eurozone fell at its fastest rate last month since the 2008 collapse of Lehman Brothers.
The eurozone economy grew 0.2% in April to July, compared with the first quarter, the European Union's statistics agency confirmed on Tuesday.
However, it added that compared with the second quarter of last year, growth was revised down to 1.6% from its earlier estimate of 1.7%.
In Germany, the eurozone's strongest economy, separate data showed that industrial orders declined by 2.8% in July.
While domestic orders remained strong, adding 3.6%, foreign orders slumped 7.4%.
'European disease''European disease'
A core concern over the high levels of government debt in the eurozone is how it will affect the banking sector. A core concern over the high levels of government debt in the eurozone is how they will affect the banking sector.
Greece is continuing with plans to ask banks and other private holders of its government bonds to swap them for others that pay a lower rate of interest over a longer period.Greece is continuing with plans to ask banks and other private holders of its government bonds to swap them for others that pay a lower rate of interest over a longer period.
The fear is that other nations, such as Spain and Italy, may ultimately be forced to follow the Greek lead.The fear is that other nations, such as Spain and Italy, may ultimately be forced to follow the Greek lead.
On Monday, Deutsche Bank's outgoing chief executive, Josef Ackermann, said on Monday that some European banks would go bust if they were forced to recognise in their accounts the existing losses on government debts they own, based on current market prices for government bonds. On Monday, Deutsche Bank's outgoing chief executive, Josef Ackermann, said that some European banks would go bust if they were forced to recognise in their accounts the existing losses on government debts they own, based on current market prices for government bonds.
European banking stocks fell again on Tuesday, with France's Credit Agricole down 4.6% and Society Generale 5% lower.European banking stocks fell again on Tuesday, with France's Credit Agricole down 4.6% and Society Generale 5% lower.
Germany's Commerzbank had fallen 3.2%, and Barclays by 2.8%.Germany's Commerzbank had fallen 3.2%, and Barclays by 2.8%.
"It's the European disease that is infecting markets all around the world at the moment," said Michael Heffernan of Austock Group."It's the European disease that is infecting markets all around the world at the moment," said Michael Heffernan of Austock Group.
Commentators say the markets are also concerned about whether European politicians are really getting to grips with the debt problem.Commentators say the markets are also concerned about whether European politicians are really getting to grips with the debt problem.
The World Bank's Mr Zoellick told the BBC's Asia Business Report: "Particularly in the case of the eurozone, we are now at a point where the muddling-through policies of providing additional finance and liquidity will not be sufficient to deal with the fundamental choices that Europe has to make. World Bank President Robert Zoellick told the BBC that eurozone leaders had to do more than simply continue to bail out struggling member states.
He said: "Particularly in the case of the eurozone, we are now at a point where the muddling-through policies of providing additional finance and liquidity will not be sufficient to deal with the fundamental choices that Europe has to make.
"Europe now faces a key change of whether it has a fiscal union or to change the nature of the eurozone. Decision time is coming.""Europe now faces a key change of whether it has a fiscal union or to change the nature of the eurozone. Decision time is coming."
The German parliament is now debating the extent of their country's contribution to the European Financial Stability Facility, the fund set up to bail out any eurozone nations struggling with their debt obligations. 'Apoplectic frenzy'
France's parliament is due to begin a similar debate shortly. However, US markets analyst Peter Kenny of Knight Capital said Wall Street remained unconvinced that the eurozone could sort out its problems.
"We have a eurozone that is an apoplectic frenzy of just trying to right the ship," he said.
"If you can find some stabilising influence in the eurozone to give the global markets some confidence, I'd be shocked."
The German and French parliaments are now debating the extent of their countries' contribution to the European Financial Stability Facility, the fund set up to bail out any eurozone nations struggling with their debt obligations.
Meanwhile, German Finance Minister Wolfgang Schaeuble is set to meet his Finnish counterpart later to try to break an impasse that is delaying Greece's second bailout fund.Meanwhile, German Finance Minister Wolfgang Schaeuble is set to meet his Finnish counterpart later to try to break an impasse that is delaying Greece's second bailout fund.
This has been caused by continuing demands by the Finnish government that Greece should pay it collateral in exchange for its contribution.This has been caused by continuing demands by the Finnish government that Greece should pay it collateral in exchange for its contribution.
Economy fears
Concerns are also growing over the state of both the European and US economies.
Data on Monday by research group Markit showed that service sector activity in the UK fell by its largest amount in more than 10 years in August, while business confidence in the eurozone fell at its fastest rate last month since the 2008 collapse of Lehman Brothers.
The eurozone economy grew 0.2% in April to July, compared with the first quarter, the European Union's statistics agency confirmed on Tuesday.
However, it added that compared with the second quarter of last year, growth was revised down to 1.6% from its earlier estimate of 1.7%.
In Germany, the eurozone's strongest economy, separate data showed that industrial orders declined by 2.8% in July.
While domestic orders remained strong, adding 3.6%, foreign orders slumped 7.4%.
In the US, fears have been gathering pace that the world's biggest economy could slip into a recession.
Data out last week showed that no new jobs were added to the US economy in August. To make matters worse, the White House warned that the unemployment rate in the US was likely to stay at about 9% till the end of 2012.
President Obama is scheduled to deliver a key speech on 8 September to outline his much-anticipated jobs creation plan.
Issues 'interlinked'Issues 'interlinked'
Richard Jeffrey, chief investment officer at Cazenove Capital Management, told BBC Radio 5 live's Wake Up To Money that the key worry for the markets was the health of the world economy.Richard Jeffrey, chief investment officer at Cazenove Capital Management, told BBC Radio 5 live's Wake Up To Money that the key worry for the markets was the health of the world economy.
"If the world economy is slowing down or perhaps even moving into recession - I think that is less likely, but that is what people fear - then that has negative implications for the financial system and the banking sector," he said."If the world economy is slowing down or perhaps even moving into recession - I think that is less likely, but that is what people fear - then that has negative implications for the financial system and the banking sector," he said.
"The debt problems in the peripheral European economies rumble on, of course, but again their debt problems are helped if there is growth."The debt problems in the peripheral European economies rumble on, of course, but again their debt problems are helped if there is growth.
"If there isn't growth in the economies, then their debt problems become more difficult to support, so this is all interlinked.""If there isn't growth in the economies, then their debt problems become more difficult to support, so this is all interlinked."
Swiss francSwiss franc
Concerns about the eurozone and US economies have seen investors move their funds into so-called haven investments such as gold and the Swiss franc.Concerns about the eurozone and US economies have seen investors move their funds into so-called haven investments such as gold and the Swiss franc.
The price of gold hit yet another all-time high in early Tuesday trading, with the spot price of the precious metal rising above $1,920 before falling back slightly to $1,919.49.The price of gold hit yet another all-time high in early Tuesday trading, with the spot price of the precious metal rising above $1,920 before falling back slightly to $1,919.49.
The Swiss government has become increasingly concerned about the high value of its currency, because it makes the country's exports less competitive.The Swiss government has become increasingly concerned about the high value of its currency, because it makes the country's exports less competitive.
On Tuesday, the Swiss National Bank (SNB) announced that it would set a minimum exchange rate of 1.20 francs to the euro.On Tuesday, the Swiss National Bank (SNB) announced that it would set a minimum exchange rate of 1.20 francs to the euro.
It said it would enforce the rate by buying foreign currency in unlimited quantities.It said it would enforce the rate by buying foreign currency in unlimited quantities.
Following the news, the euro strengthened against the Swiss currency, rising 8.3% to 1.2019 francs.Following the news, the euro strengthened against the Swiss currency, rising 8.3% to 1.2019 francs.
The SNB had previously announced that it would increase available deposits to commercial banks, as well as cut interest rates.The SNB had previously announced that it would increase available deposits to commercial banks, as well as cut interest rates.