Europe 2010 Performance Review: Debt Crisis Ruined EU Unity

The European region experienced a volatile 2010 as a massive sovereign debt crisis

Anuradha Ramanathan 19 January, 2011 | 0:00
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The European region experienced a volatile 2010 as a massive sovereign debt crisis threatened to derail a vulnerable euro currency along with the 16 nations that constitute the eurozone. "Austerity" became the new European mantra as nations scrambled to stay out of bankruptcy, undermining a proclamation that European Union leaders made 10 years ago of creating the world's most competitive region by 2010.


The European bourses showed mixed performance in 2010, with Britain's FTSE 100 surging 9% and Germany's DAX gaining 16%. However, France's CAC dropped 2% for the year.


Euro member Greece toppled early in the year after the true state of its finances became clear to the European Union and the European Central Bank. Despite German Chancellor Angela Merkel resisting a bailout package and the French prime minister warning that France will leave the single currency, the EU and International Monetary Fund created a bailout fund worth 440 billion euros, consisting of loan guarantees from eurozone members.


Greece received a 110 billion euro rescue package in May, and more recently Ireland's debt-laden banks, in dire need for bailout, got 85 billion euros. The IMF warned of a risk in Europe becoming divided and insisted on devising comprehensive steps to contain the debt crisis versus a piecemeal solution.


The ECB sought to calm the markets by conducting a stress test to ascertain banks' liquidity levels to see if they would withstand a credit crunch. While 91 regional financial institutions under review passed the test, the results' credibility was questioned.


Ireland's big banks including Bank of Ireland and Allied Irish Bank, which passed the stress test, still reeled under debt due to the property crash. Four of the six major Irish banks have now been effectively nationalized.


Europe's leading blue-chip index for the eurozone, the Euro Stoxx 50, fell more than 5%. The components of the index include insurer AXA, personal goods maker L'Oreal, and bank Credit Agricole.


However, EU economic growth was led by Germany, which saw GDP rise 2.2% in the second quarter, its highest since the country's reunification 20 years ago. The main driver of expansion for Germany was exports to China as demand from the Asian country soared.


Separately, BP's Deepwater Horizon oil spill in the Gulf of Mexico, deemed as the worst oil catastrophe, reverberated through the world markets. The world's largest offshore driller Transocean and main contractor Halliburton faced immense pressure from the Obama administration. Although the well was finally capped, and the London-based firm's shares are off their bottom earlier in the year, the stock is still down about 22% for the year.


Sectors and Industries

The banking sector was battered with a slew of debt worries continuing to depress stocks. Europe's largest bank, HSBC Holdings, lost about 8% in 2010, while Barclays is down around 5%. France's BNP Paribas slumped 13%, and Deutsche Bank dropped over 13% in Germany.


With the exception of oil giant BP, shares of other energy-related companies gained in the year. Shares of Royal Dutch Shell jumped 14%, while BG Group also advanced over 15%.


Since July 1, Prudential PLC has seen its stock rise about 35% after the British insurer terminated a $35.5 billion deal to buy the U.S.-based American International Group's Asian unit, AIA. The British insurer's shareholders balked at the cost of the bid, throwing the company's chief executive Tidjane Thiam's rationale under scrutiny.


A rise in positive sentiment and an increase in global demand for automobiles boosted the auto sector. Shares of Germany's BMW surged over 85% in the year, while Volkswagen soared 38%. Emerging markets like China and India continued to rack up new records in vehicle sales, proving to be recession-resilient markets.


Elsewhere, big pharmaceutical company Sanofi-Aventis became part of a transatlantic takeover battle after proposing a bid to buy out U.S.-based biotechnology firm Genzyme. Shares of the French drugmaker have fallen nearly 13%. Sanofi took its $69 per share offer directly to the shareholders of Genzyme, a company which makes treatments for rare genetic diseases.



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Anuradha Ramanathan is an Assistant Site Editor for based in Mumbai, India. And this is an edited version by Editorial & Research Team, Morningstar Asia.

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Anuradha Ramanathan  Anuradha Ramanathan is an assistant site editor for based in Mumbai, India.

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