Markets Assess Last G-7 Summit |
Friday was “black” for European stock markets – the leading indices crashed 3-4% while the Milan stock market fell almost 5%. The panic attack among investors was instigated by European Central Bank executive board member Jurgen Stark’s resignation, which reflects the conflict among the bank’s leadership over buying up obligations from the Euro zone’s most troubled countries.
Differences of opinion among Europe’s politicians about how to cope with the crisis are growing stronger. Because of this, market players are dumping shares of banks since they would suffer first in the event of a default in Greece or any other Euro zone country. Shares of the French bank Societe Generale dropped 10% in one session; the Euro rolled back to settle at $1.37.
America is also bringing investors some additional disappointments: Fed Chairman Ben Bernanke’s address didn’t reveal any concrete plans for preventing the recession in the country’s economy. In response, oil dropped to its lowest level of the week – a barrel of Brent crude oil is trading at $112 in London.
World economic leaders’ opinions are diverging on how to get out of the crisis; this is was even more apparent from the meeting among the finance ministers of the G-7 countries in Marseilles, France. While the US president proposed a new costly plan on stimulating employment (in the amount of $447 billion), Euro zone countries one after the other are tightening their budgets and are trying to reduce their debts.
The new head of the IMF Christine Lagarde is ordering Europeans to think more about how to avoid a recession. “There aren’t any doubts that in economically developed countries, budget stability should be restored. But politicians, especially financial authorities, should be prepared to take additional measures if necessary to stimulate economic growth, and this includes non-traditional measures.”
Traditional measures, it seems, have been exhausted. After the 2008 crisis, the G-7 countries pumped hundreds of billions of dollars into the financial system, for which they had to turn on the printing press and increase borrowing. Now, the question for many experts is only when the stagnation will turn into a recession. Investors this week await new turbulence on the markets because of the worsening debt problem in Europe and expectations of a new helping of weak economic statistics from the US.
Chancellor Angela Merkel made a pretty harsh announcement yesterday on the situation surrounding Greece’s abilities to solve its debt problems. DT Trading analysts explain that Germany is finally starting to realize that Athens is in no condition to resolve them. This is a serious signal that Greece could default and simultaneously leave the Euro zone. The year-and-a-half epic “salvation of Greece” seems not likely to end in Athens’ favor. Berlin will probably sacrifice Greece in the name of saving the Euro zone as a whole.
Amid all this negative news, the unified currency fell to February levels and may likely continue to drop until a decision is made on whether Greece can pay its debts. The market will soon digest Merkel’s words and if Athens is to actually be “released into a free float” this will be a good signal for growth of the Euro in the long-term. In the meantime, DT Trading experts think that markets will take a wait-and-see approach and the US dollar will possibly still receive some support.
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