European stocks drop before Sarkozy-Merkel meeting

LONDON: Europe's main equity markets fell in cautious opening trade on Tuesday before a key eurozone crisis meeting between French President Nicolas Sarkozy and German Chancellor Angela Merkel in Paris.

London's FTSE 100 index of leading shares slid 0.68 percent to 5,314.16 points, Frankfurt's DAX 30 lost 1.02 percent to 6,022.24 points and the Paris CAC 40 dropped 0.73 percent to 3,215.50 points.

Elsewhere, Madrid declined 0.65 percent to 8,652.2 points and Milan shed 0.28 percent to 15,844 points. Zurich slid 0.63 percent to 5,291.39 points and Lisbon was off 0.28 percent at 6,334.93 points.

Before the key meeting, Germany announced slower-than-expected 0.1-percent economic growth in the second quarter, while Spain also said its economy slowed to 0.2 percent growth.

World stock markets had edged higher on Monday, steadying after recent losses that were rooted in fears that the US and eurozone debt crises could push the global economy back into recession.

"The key event for today after yesterday's rise in equity markets is today's meeting of German Chancellor Angela Merkel and French president Nicolas Sarkozy this afternoon," said CMC Markets analyst Michael Hewson.

"It would seem that on the evidence of yesterday's return of risk appetite some market participants seem to have got it into their heads that we could see some progress at this meeting.

"In light of recent experience this seems highly unlikely, given that one of the solutions that could assuage investor concerns has been ruled out by both Germany and France respectively."

Investors have been watching anxiously to see whether Sarkozy and Merkel would agree a plan to boost confidence in Europe.

On the eve of the talks, on Monday, both sides talked down the chances of a breakthrough. Berlin and Paris flatly ruled out talk of issuing joint eurozone bonds, or eurobonds.

The idea of eurobonds issued and guaranteed by countries with better credit ratings has long been floated as a way of helping struggling eurozone members raise money on the markets at affordable interest rates.

"We do not expect any major developments to derive from this meeting," agreed economist Lee Hardman at The Bank of Tokyo-Mitsubishi UFJ in London.

"As highlighted yesterday, Germany's position on eurobonds remains unchanged, continuing to prefer pressing for fiscal consolidation at the current juncture."

Germany is opposed to the introduction of eurobonds as it believes it would increase its own borrowing costs and allow countries to duck badly needed reforms.

Last week's volatility prompted a record 22 billion euro ($32 billion) bond-buying intervention from the European Central Bank in a bid to calm markets.

Copyright AFP (Agence France-Presse), 2011