Fears of a Europe-wide cash crisis sent shares, commodities and the euro plummeting today as a deadline approached for banks to repay a giant European Central Bank loan.
Policymakers in the eurozone sought to reassure markets that Thursday’s deadline for banks to repay a record €442 billion (£360 billion) one-year liquidity injection would be managed smoothly.
Elena Salgado, the Spanish Economy Minister, said she hoped that the ECB was aware of the situation faced by her country’s stressed banks, some of which have been shut out of interbank lending due to worries over bad debts and public finances.
“The ECB says it doesn’t like governments to tell it what to do. I simply say I hope that in this occasion, as in others, the ECB will be aware of the needs of the Spanish financial system,” Ms Salgado told Spanish radio.
Christian Noyer, a member of the ECB Governing Council, told French radio: “The ECB and the eurosystem will do what is necessary to make sure the liquidity is there. You shouldn’t exaggerate things or be excessively worried.”
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The repayment on Thursday will mark the end of the European Central Bank’s emergency one-year loan provision. The one-year loans will be replaced with three-month loans at a base rate of 1 per cent, potentially posing more difficulties for European banks already exposed to government debt of Spain, Portugal and Greece.
Fears over the stability of the eurozone weighed on global stock markets and commodity prices as investors sought safe havens, with London’s FTSE 100 falling 2.9 per cent, or 143.94 points, at 4,927 and Wall Street opening down 2.3 per cent at 9,909. Germany’s Dax index was down 2.76 per cent and France’s CAC 40 index down 3.4 per cent by the afternoon.
Copper fell 4 per cent on the opening of US trading this afternoon and oil fell more than 3 per cent to below $76 (£50) a barrel.
The Euribor rates at which banks lend to each other in euros hit their highest levels in more than nine months.
The euro dipped to 80.85p, its lowest level since November 2008 and down from 82p yesterday.
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The pound has also rallied against the dollar in recent days amid fears that the US will not be as stringent as Britain in cutting its budget deficit.
After months of being battered around the world sterling has stabilised at above $1.51, its highest rate since April and far above the 14-month low of $1.42 in mid-May.
Sterling was further boosted yesterday when Andrew Sentance, a member of the Bank of England’s rate-setting committee, renewed his calls for an interest rate rise despite the tough fiscal plans laid out in the Budget.