Turmoil on European stockmarkets over contagion fears

Italian and Spanish stockmarkets plunged on Tuesday as finance ministers from the 27-nation European Union met in Brussels to discuss how to stop a debt crisis that threatens to spread throughout the Eurozone.

Reuters/Tony Gentile

The benchmark FTSE Mib index Milan dropped almost four per cent in morning trading with shares in Italian banks leading the fall.

In Madrid, the IBEX-35 index fell 3.75 per cent. The euro also dropped in early trading to a four month low against the dollar at 1.39 dollars.

Italy’s finance minister Giulio Tremonti left the meeting early in Brussels saying he was needed back in Rome to work on plans for an austerity budget.

The Italian government earlier unveiled a four-year austerity plan worth an estimated 40 billion euros in a bid to reduce the budget deficit to 0.2 per cent of output by 2014 from 4.6 per cent last year.

Italy has one of the highest public debt levels in the world and one of the lowest growth rates in Europe. The current weakness of Prime Minister Berlusconi’s centre-right government is also unsettling financial markets.

Spain’s Finance Minister Elena Salgado says there is no logic to the current market turmoil as both Italy and Spain have strong economies. Spain’s economic crisis, sparked by the 2008 property bubble collapse, sent the unemployment rate soaring to 21.29 per cent in the first quarter of 2011.

There are concerns that Italy and Spain may have to follow Greece, Portugal and the Republic of Ireland in seeking a European Union and International Monetary Fund (IMF) bail-out.

On Monday, eurozone finance ministers said they were ready to pass new measures to stop the crisis spreading.