The stock market was in turmoil on Thursday as a result of the crucial votes on euro zone policy taking place in German parliament.
The German opposition votes make the bill, which will approve new powers to the euro zone rescue fund, likely to pass.
The euro remained higher against the dollar as German Bund futures eased, but sentiment around the market continues to be uneasy.
Joe Rundle, head of trading at ETX Capital, said “There is going to be a lot of volatility until the German vote.”
The FTSEurofirst 300, a pan-European index, had top shares down 0.4%, down to 924.31 points after a 1.2% slip in the last session.
Another factor guiding the choppy market was portfolio balancing, as investors are switching funds between markets and asset classes towards the end of the financial quarter.
Vote in Germany
Rundle went on to say that what remains to be seen is how much support Chancellor Angela Merkel gets from her own party.
Opposition from Merkel’s centre-right coalition could endanger her politically and make it more difficult to pass policies in the future. This is dangerous, as European leaders feel global pressure to make real strides against the sovereign debt problem.
“A weak German leader makes decision making very difficult, we need a unified front for the euro zone and any sign of weakness is going to jeopardize that,” said Rundle.
The euro has already been hammered, losing nearly 7% against the dollar this quarter because of anxiety over the prospect of a Greek default and indecisive action on the part of European policy-makers.
Allowing the problem to continue has made fears of ‘contagion’ grow, as investors worry about bigger floundering economies such like Italy and Spain.
Analysts at BNB Parias summed up the potential financial danger of the unresolved euro zone crisis:
“Caught between fears of a further meltdown and hopes of policymakers in shining armour, markets are in danger of losing conviction and settling into the pattern of intra-day reversals that characterised trading in June and July.”