Europe's Markets Slump

The Wall Street Journal

By TOBY ANDERSON

LONDON—European stocks opened sharply lower Monday amid deepening concerns about a possible Greek default, while the euro slumped to a 10-year low against the safe-haven yen.

London's FTSE 100 index was 1.9% lower at 5114.72, Frankfurt's DAX index dropped 2.5% to 5061.87 and the CAC-40 index in Paris fell 3.3% to 2875.28.

Greece said Sunday it will make €2 billion ($2.73 billion) in new budget cuts to meet demands by the European Union and the International Monetary Fund, but this has done little to assuage market concerns that the embattled Mediterranean country won't be able to afford its debt payments.

Indeed, German Economy Minister Philipp Roesler said Europe could no longer rule out an "orderly default" for Greece as it struggles with a crippling debt crisis.

Banks led the declines Monday, with Société Générale off 11% after it sought to reassure investors over its exposure to Greek debt and announced cost-cutting measures and plans to speed up asset disposals.

SocGen's French peers Crédit Agricole and BNP Paribas were down 13% and 9%, respectively, while in Germany, Deutsche Bank slid 7%. Investors are concerned that ratings firm Moody's Investors Service Inc. may downgrade France's three largest banks this week amid concerns over their holdings of Greek sovereign debt.

Adding to the bearish sentiment was the relative lack of action from the Group of Seven meeting over the weekend, coupled with the reaction to the surprise resignation of Jürgen Stark from the executive board of the European Central Bank late Friday.

"From 'the usual' (the euro-zone sovereign debt crisis) to slowdown and speculation that the ECB will be forced into a policy U-turn, to the divisions that are implied by the resignation of the ECB's chief economist, Jürgen Stark, and to continued worries about rising dollar funding costs for European banks, there is nothing but bad news," said Kit Juckes at Société Générale.

The euro slumped in Asian trade to a fresh 10-year low versus the yen. The single currency traded recently at ¥104.50, its lowest level since June 2001, compared with ¥107.66 late Friday in New York. The single currency was also lower against the dollar, at $1.3544 from $1.3657.

Asian shares dropped sharply Monday, with the Tokyo stock market skidding to its lowest level since 2009.

Wall Street's sharp drop on Friday and the renewed euro-zone woes sent investors scurrying out of riskier stocks into safe-haven bonds and yen.

"It's very clear to us that this situation in Europe is not going to end well and the now-plummeting euro is trying to tell you that some sort of Greek default and subsequent European bank recapitalization program is imminent," said Charlie Aitken, managing director of Bell Potter in Sydney.

Japan's Nikkei Stock Average closed 2.3% lower, ending at its lowest level since April 2009, Australia's S&P/ASX 200 dropped 3.7%, closing at a four-week low, while Hong Kong's Hang Seng Index slumped 4.1%. Markets in South Korea, China and Taiwan were closed for a holiday.

In the U.S. Friday, stocks closed sharply lower due to fresh worries of any Greek default, the surprise resignation of Mr. Stark from the ECB and concerns about President Barack Obama's jobs plan.

The Dow Jones Industrial Average tumbled 303.68 points, or 2.7%, to 10992.13, its fifth drop out of the last six sessions. The Standard & Poor's 500-stock index shed 31.67 points, or 2.7%, to 1154.23.

The flight to safety early in Europe saw the December bund contract trade at 138.37, up 0.60, after hitting a new contract high at 138.41.

The October Nymex crude contract for October delivery was down $2.24 at $85.29 a barrel, while spot gold was at $1,822 a troy ounce, down $34.90 from New York.

—Barbara Kollmeyer in Madrid contributed to this article