European markets were shocked by Greece’s Prime Minister’s decision to hold a referendum on its eurozone bailout package.
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The Greek stock exchange was almost 6% down at midday. And at one point, banks fell by more than 13%.
In Germany, the DAX opened 4% down and the story was much the same in the U.K. and France, as stocks were suffering their biggest one-day selloff in a month.
Bank stocks took a beating – and especially French banks, which have big exposure to peripheral eurozone debt. Societe Generale was down by over 14% at one point, and BNP Paribas was down by 10%.
There was a rally after last week’s EU summit to solve the crisis, but now Frankfurt trader, Robert Halver, says the markets expect Greece to default on its debt.
“For me, it’s a done deal that the Greek guys will say no. And that’s good news because the Greek guys can’t stay in the eurozone. They have to go out, otherwise I can see the end of the eurozone itself.”
Investors sold the euro as they fled to safe-haven investments.
Commodities shares were hit by the collapse of broker, MF Global. The company filed for bankruptcy protection on Monday after making bad bets on eurozone debt.
Markets were also rattled by data showing Chinese factory activity slowed to the lowest level in three years in October.
With the gloomy economic picture, and the Greek referendum not expected until the beginning of next year, analysts say market uncertainty is likely to continue for the rest of 2011.
Bottom line: European stocks were expected to suffer their biggest one-day selloff in a month after Greece’s Prime Minister unexpectedly called a referendum on the latest EU bailout deal.