Coronavirus: historic plunge in European stock markets

Text by: RFI Follow

The global coronavirus health crisis is shaking the stock markets very hard, especially in Europe where the epidemic continues to spread.

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European stock markets plunged completely and experienced some of their worst falls this Thursday, March 12, faced with economic uncertainties caused by the coronavirus epidemic.

The Paris Stock Exchange experienced the sharpest fall in its history on Thursday, closing at -12.28%. The CAC 40 index plunged 565 points to finish at 4,044.26 points. By way of comparison, it had lost 7.3% at the close on the day of the September 11, 2001 attacks, and 7.7% on October 10, 2008, in the midst of the subprime crisis.

Historic fall in Milan

Worst fall in its history also for the Milan Stock Exchange, which is at the heart of the Italian epidemic center. It closed at -16.92% at 14,894 points, beating the previous negative record of June 2016 following the success of the Brexit referendum. The index is currently at the level it was in mid-2013, according to the AGI agency.

The Madrid Stock Exchange also experienced a steep plunge in its history, losing 14.06% in a market panicked by the economic consequences of the coronavirus pandemic which has already infected nearly 3,000 people in the Iberian Peninsula.

The Frankfurt Stock Exchange meanwhile lost 12.24%, its worst session since 1989. The London Stock Exchange also closed its session on a dip at 9.81%, which it had not experienced since 1987.

ECB wants to stem panic

To avoid a wave of defaults, the guardians of the euro have offered additional liquidity to banks to encourage them to keep credit for households and businesses open. An additional 120 billion euros will have to be spent by the end of the year to buy debt, particularly that of the private sector. This effort will reinforce the purchasing program already underway since last November.

However, contrary to what other central banks have decided, the Frankfurt Institute has left its rates unchanged. In particular, the deposit rate, which applies to the liquidity that the banks choose to entrust to the ECB, failing to distribute it in the form of credits, has been kept at minus 0.5%. Ditto for the key rate used to refinance short-term banks, it remains at zero.

Wall Street disoriented

All European stock markets have given in to panic, while Wall Street, the main financial center in the world, seems completely confused.

This panic in the financial markets primarily affects the sectors most affected by the consequences of the coronavirus crisis. Air transport, hotels, tourism, and the automotive industry are in free fall, Renault lost 21% in Paris.

Bank stocks are collapsing because the measures announced by the European Central Bank have not reassured the markets. The ECB, however, announces buyouts of public debts and measures to support businesses, especially SMEs. This is precisely the basis of panic. The markets anticipate a drop in corporate profits, or even a series of bankruptcies, due to the general withdrawal in Europe.

But the President of the ECB, Christine Lagarde has shown the limits of her action. We can no longer lower European rates already to zero, and she turns to the governments of the euro zone which she criticizes for their slowness in bringing an ambitious budgetary response. A virulence which reflects the dominant feeling in Europe. Panic is there, governments must act.

(With AFP)

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