By  on August 4, 2011

LONDON — Europe’s major stock markets sank more than 3 percent Thursday after a fraught day of worrisome news for the euro zone.

Europe’s leading blue chip indices were already down in early afternoon trading on Thursday, and slipped further as the day dragged on.

Italy’s FTSE MIB closed down 3.23 percent; Germany’s DAX fell 3.4 percent; France’s CAC 40 slid 3.9 percent; and the FTSE 100 sank 3.2 percent.

During the day, the Centre for Economics and Business Research, a London-based think tank, said it believed “Italy is bound to default.” It foresees Italy’s debt to GDP ratio rising to over 150 percent by 2017, if borrowing costs remain at 6 percent and growth stays close to zero.

Douglas McWilliams, chief executive of the think tank, said that even if Italy’s borrowing rates fall to 4 percent, growth is so “anemic” that debt to GDP ratio will remain at 128 percent. He said Spain may avoid default, but the situation is still fragile.

“If one Euro zone country defaults, the markets are likely to put pressure on the other weak economies and push up bond yields. This will in turn drag them down…We are pessimistic about the chances of the euro holding together,” he wrote.

Earlier in the day, Jose Manuel Barroso, president of the European Commission, wrote an open letter to EU leaders pleading for increased efforts to shore up the fiscal crisis sweeping Europe.

“Markets remain to be convinced that we are taking the appropriate steps to resolve the crisis,” he wrote. “Euro-area financial stability must be safeguarded, with all EU institutions playing their part with the full backing of euro area Member States.”

His wrote that the July 21 Greek bailout and other rescue measures taken jointly by euro zone countries “Are not having their intended effect on the markets,” and that Europe needed to strengthen its fiscal safety net.

The Bank of England, meanwhile, held interest rates at an all-time low of 0.5 percent for the 29th month in a row, while gold has hit a record high of $1,677 an ounce. There is talk in the British media that the gold price could rise to $2,000 by the end of the year as investors increasingly seek a safe haven for their investments.

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