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Losses mount in Europe

Governments' erratic responses compound uncertainty. Some blame the U.S. as their portfolio values shrink.

October 11, 2008|Henry Chu | Times Staff Writer

LONDON — The tsunami of global stock sell-offs swept through Europe on Friday as shareholders deserted the markets in droves, pushing down stock prices in a frenzy some dubbed Red October.

Exchanges that had hit record highs just a year ago plunged almost from the moment they opened. London's FTSE 100 lost 10% of its value within half an hour of the opening bell.

The glumness within the financial industry is increasingly being matched by fear in what Europeans call the "real economy," or the workaday world. Small investors, from pensioners to assembly-line workers, are bracing for a sharp decline in living standards -- and some are blaming the United States.

"This economic crisis is ruining us," Cesare Tesori, 65, said as he was out shopping in Rome. "Before when I needed money, I could at least go to the bank and get cash from the little savings we had. Now, all my investments in stocks -- especially the American ones -- have fallen so dramatically that we were advised not to sell them because we would lose too much money. So this means I can't access my money."

Retired from his job with Italian state television, Tesori sees little but deprivation ahead. "I guess the only thing left for us is to avoid using the washing machine in order to save electricity and start washing our clothes by hand, like our grandparents used to do," he said. "This is what the American economy did to us."

The London exchange closed down 9%, below the psychologically important threshold of 4,000 points, the index's lowest level in five years. Bourses in Paris and Frankfurt bled 8% and 7% of their value, respectively.

The outlook was similarly depressing in Switzerland and Italy. In other European countries, from Iceland in the west to Romania in the east, trading had to be suspended.

Seemingly erratic action by governments compounded the feeling of uncertainty.

In Russia, whose RTS exchange is worth less than half its value compared with last year, officials announced earlier this week a two-day suspension of trading. They then discarded that plan and reopened the markets, before closing them again Friday.

"The market regulators don't have any experience acting in these crisis conditions," said oil analyst Denis Zakharov. "They don't have a consistent policy. It makes investors nervous."

The financial crisis has triggered a major diplomatic row between Britain and Iceland, where the nation's top three banks were nationalized this week. That caused many Britons and British public bodies to fear for deposits held in Icelandic banks -- as much as $1.75 billion. In response, Prime Minister Gordon Brown froze the British-based assets of one of the banks under an anti-terrorism law.

Iceland's premier, Geir Haarde, labeled the move a "completely unfriendly act." But he has bigger problems to wrestle with, including the question of whether his country will have to turn to the International Monetary Fund for help -- a humiliating prospect for what has been one of the richest nations, per capita, in Europe.

Even as the London stock market was plummeting from what one analyst described as "blind, panicked selling," Brown spent part of Friday urging other world leaders to follow his example in bailing out their banking systems.

On Wednesday, he unveiled an $87-billion bailout package that he is touting as a groundbreaking plan to inject much-needed capital into the banks in return for shares. The plan partially nationalizes some of the biggest players in British finance, including Barclays and Lloyds TSB.

On Friday, several hundred left-wing demonstrators tried to force their way into a building next to the Bank of England's London headquarters to protest the bailout plan as a rip-off of British taxpayers.

The U.S. announced a similar plan Friday. Italy, too, has authorized a bank recapitalization plan to be enacted should the need arise. On Monday, finance ministers from the 15 nations that share the euro will debate how to deal with the ripple effects of the credit squeeze that began on Wall Street.

Meanwhile, worry has also settled over Europe's economic powerhouse, Germany.

Georg Beckmann, a 71-year-old former electrical engineer, tried to stay ahead of the market meltdown by ditching his stocks last week. He took the money and divided it between a regular savings account and gold.

"The savings bank is insured by the state of Berlin, and gold is something physical," Beckmann said. "There may be not such a high profit like with my stocks -- I had mainly German industry and bank stocks -- but especially the banks went down in such a drastic way that I decided last week to go into a safe haven."

His decision gave him a jump on this week's market nose dive. Even then, Beckmann said, his assets lost 20% of their value in the last year.

--

henry.chu@latimes.com

Times staff writers Maria de Cristofaro in Rome, Christian Retzlaff in Berlin, Achrene Sicakyuz in Paris and Megan Stack in Moscow contributed to this report.

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