EU Australia Online - News & information from the capital of Europe direct to Australian businesses

Times Of Risk: Rough Start To The Week On Stock Markets …

  • August 9th, 2011
  • Posted by EUEditor

us-dollar12.jpgeu-symbol-coins.jpgThe second week of August set out with the tandem selling-off on stock exchanges in Europe and the United states, and heavy falls also in Asia.

Some of the sustained loss-taking matched persistent and sharp drops seen in the crisis of 1987; one-day losses at Frankfurt, London and other European exchanges exceeded 4%.

The European Central Bank followed up on indications given last week that it would buy Italian and Spanish bonds, bringing down rates and easing pressure on government debt.

However on the stock markets, the opening of the New York Stock Exchange confirmed there would be a downward trend and Europe followed suit.

President Barack Obama in Washington concurred with analysts on the underlying cause, a need for long-term strategies to reduce debt and deficits – public debt levels in America equaling Gross Domestic Product, deficits at 10% of GDP.

Similar concerns had motivated the Standard and Poors credit-rating agency to issue a down-grade on his government’s triple-A rate, (See EUAustralia Online, “Share markets slump …”, 7.8.11). (That decision itself was coming under scrutiny; an agency seen to have failed in the lead-up to financial crisis in 2008, was judged to be talking about investment risk, instead of credit, where the ability of the US government to pay was never doubted).

“No matter what some agency may say, we’ve always been and always will be a triple-A country”, said President Obama in a televised address.

He pointed to the paralysis of the US Congress last week, with the parties, the Democrats, Republicans, and the Republicans’ recalcitrant “no taxes” right wing, deadlocked until the eleventh-hour on a key decision last week, to lift the ceiling on state borrowing. See EUAustralia Online, “US crisis under watch”, 30.7.11).

The interests of the country, he said, were being subordinated to “self-interest, party, and ideology”.

Shifting of debt from banks to governments, to exit the financial crisis of 2008, is having its consequences.

The general flight from risk continued to feed fears of a new recession in the United States, with its ramifications across the Atlantic, and elsewhere.