Investors feared for the future of the euro yesterday after markets slumped in a reaction to Germany’s ban on short selling.
The single currency hit a four-year low against the dollar when financial markets panicked for the future of the euro.
Britain's top shares also fell with the FTSE down as investors were spooked by Germany's decision to ban risky trading known as ‘naked short selling’ after it was blamed for making the Greek debt crisis worse and destabilising European financial markets.
German Chancellor Angela Merkel justified her ban on short selling saying that the fate of the European Union depended on the survival of the European currency.
She said: “If the euro fails, then Europe fails. The euro is in danger. If we do not avert this danger, then the consequences are incalculable and the consequences for the whole of Europe are also incalculable.”
The effects also spread to Asia with Japanese stocks declining after the finance minister spread deflation concerns and a report showed the economy grew less than forecast. And there are now fears that UK investors will begin withdrawing from European funds and further damage the euro.
However Peter Lees, head of UK equities at F&C believes it will only be a short term measure: “The bailout for the peripheral countries in the Eurozone will only buy time and the authorities have not addressed the central problem of how to reduce debt.
“In my opinion, the end result is likely to be default or debt restructuring combined with fundamental reform of the Eurozone, that may or may not involve fiscal as well as monetary union. “
However, according to the BBC, France's economy minister Christine Lagarde said the euro was not in danger. She said: "The euro is a solid and credible currency. I absolutely do not think that the euro is in danger."
The crisis deepened as David Cameron prepared for his first visit as Prime Minister to Paris and Berlin, where he is likely to come under pressure to commit more British funds to EU bailout to stop the euro failing.
© Fair Investment Company Ltd