FX.co ★ Turkey’s turmoil rocks European equities

European stock markets fell amid worries that Turkey is on the verge of an economic meltdown.

The STOXX Europe 600 Index, designed to reflect the performance of shares in 600 companies in the region, fell by 0.25% to 384.91. The UK FTSE 100 fell by 0.32%, while the French CAC 40 declined by 0.04%, and the German DAX slid by 0.53%. Spain's IBEX 35 index fell by 0.75%, and Italy’s FTSE MIB lost 0.58%.

Shares in German chemicals and pharmaceuticals giant Bayer nosedived by 10.5%. Meanwhile, Swiss investment company GAM Holding AG stock price fell by 3.7% after it said it would liquidate $7.3 billion of its funds. The market value of Air France-KLM decreased by 4.1%. Shares in most travel companies, including TUI AG and Thomas Cook Group Plc., fell in price amid fears associated with Turkey.

Investors have been spooked by growing problems in Turkey, which could affect Europe due to a huge number of eurozone companies in this country. The Turkish regulator’s promise to provide liquidity to the financial system in times of crisis was unable to support financial markets. As a result, the lira is falling, while the Turkish stock indexes continue to decline.

Turkey’s central bank has tweaked reserve requirements to free up about 10 billion Turkish lira, or $6 billion, in the financial system. Moreover, the Turkish lira reserve requirement ratios have been lowered and collateral forex deposit limits for banks' transactions in the lira have been raised by almost threefold.

However, analysts at Societe Generale said the central bank’s moves were insufficient, with the need of more drastic measures.