European stocks hit their lowest closing level in nearly two weeks today, dragged down by banking shares, as investors became jittery following Germany's move to ban naked short sales of a range of financial assets.
The FTSEurofirst 300 index of top European shares ended 3 per cent lower at 996.38 points. It fell below 1,000 for the first time since a €750 billion ($930 billion) package aimed at preventing the Greek debt crisis from spreading was unveiled earlier this month.
Financial stocks were among the top losers, with the STOXX Europe 600 banking index falling 3.5 per cent. Barclays, Lloyds, Royal Bank of Scotland, BNP Paribas, Societe Generale, Credit Agricole and Natixis fell 3.2 percent to 5.5 per cent.
In a surprise move late yesterday, Germany banned against bets on bonds, stocks and credit protection in a tentative crack down on speculative trading, which has been widely blamed by leaders for exacerbating the euro zone debt crisis.
German chancellor Angela Merkel's speech to parliament that the euro was in danger also hurt sentiment. She urged speedy action to stop market "extortion," and said the EU needed a process for "orderly" insolvency of its members.
Germany will act alone where necessary, she said. "All of this will stay in effect until another solution has been found at the European level," she said.
The euro is at risk and Europe may be facing its greatest challenge since the founding of the European Union, with "incalculable" consequences if leaders fail to act, Mrs Merkel said.
Around Europe, the UK's FTSE 100 index was down 2.8 per cent, Germany's DAX index fell 2.7 per cent and France's CAC 40 slipped 2.9 per cent.
About 454 million shares changed hands on the FTSEurofirst 300, representing 160 per cent of its 90-day daily average volume. The average daily volume in 2009 was 253 million shares.
So far this year, the FTSE 100 has lost 4.7 per cent, the DAX is up 0.6 per cent and the CAC is down 11 per cent, while southern European indexes have been hammered.
Earlier today, Mrs Merkel, opening a parliamentary debate on Germany's contribution to a €750 billion bailout to backstop the euro, said faster budget cuts, tougher penalties for countries that flout the rules and the orderly insolvency of euro-region states are among the measures Germany will put to European Union partners on May 21st.
"The lack of rules and limits can make behavior in financial markets driven purely by the profit motive
destructive and lead to an existential threat to financial stability in Europe and even the world," Mrs Merkel told lawmakers in Berlin today. "The market alone won't correct these mistakes."
Mrs Merkel's coalition is seeking to build momentum on market regulation amid public opposition to Germany's share of the Greek and euro-region bailouts. Germany banned naked short-selling and speculation on European government bonds with credit-default swaps today in an effort to calm financial markets, sparking investor anxiety about increasing regulation.
Bloomberg