Shares have fallen after an announcement by the European Central Bank ruled out any hope of substantial aid to help the eurozone out of a crippling debt crisis.
Two particularly vulnerable countries – France, who is in danger of a credit downgrade, and Italy, which is struggling under debt and austerity – had a poor showing at the market.
Markets ended down 2.5 percent in France and 4.3 percent in Italy.
President of the European Central Bank Mario Draghi revealed new support measures for banks within the eurozone, as their holdings of national debt could leave them vulnerable if a eurozone country should default.
Draghi announced that three year loans will be made available to banks starting 21 December, with more generous minimums for what the ECB will deem acceptable collateral.
However, he left no room for hope that there would be any further financial support for government that are floundering under sovereign debt problems.
Before this, there had been speculation about the ECB’s role with Italy, as many anslysts thought the Bank would help in a bailout if the eurozone reformed borrowing and spending limits.
This dashed hopes caused the Dow Jones, the US’s main share index, to slide down 1 percent in morning trading, while Germany’s Dax index closed 2 percent lower.
Meanwhile, the euro fell more than a cent against the dollar in just the time that the President of the ECB made his statement. The euro had risen just previously, as Dragi announced a cut in interest rates to a historically low 1 percent.
Draghi said that the refusal to help was because of an ECB treaty that says “no monetary financing to governments.”
The speech that has been rocking financial markets came just one day ahead of what many are calling a “do-or-die” summit of European Union leaders.
UK Prime Minister David Cameron will be in attendance, and has been under fresh pressure to ensure UK interests as the 17 eurozone countries plan to come together in a closer fiscal union.
The world is waiting for the end of the two-day summit, expecting the leaders to come up with conclusions that can finally solve the debt crisis.
European leaders are expected to agree upon new, tougher regulations regarding eurozone spending, and automatic fines to eurozone governments that do not conform. Analysts say the goal will be for all eurozone countries to cut borrowing below 3% of their national output, or gross domestic product (GDP).