Economists worry as stock markets plummet
The Local · 5 Aug 2011, 07:28
Published: 05 Aug 2011 07:28 GMT+02:00
In the United States, the Dow Jones industrial average fell 513 points, or about 4 percent. And in Germany, the DAX plummeted about 200 points to 6414, 3.4 percent down on the previous day.
“The situation is worrying,” said Gustav Horn, the director of the Macroeconomic Policy Institute (IFK), who spoke of a market “panic” that could cause lending markets to crash.
He called on US and European authorities to intervene immediately and prop up failing markets.
Analysts think the massive stock exchange drops are being driven by new investor concern over wobbly Italian and Spanish banks and what that could mean for the world economy. Investors are concerned that the banks carry too much national debt and aren’t reporting their true state of affairs.
The biggest problems lie in investors’ scepticism of the creditworthiness of debt issued by European countries and concern that a major European bank could eventually default.
A European bank default could create a major credit crisis, on par with what happened in the United States in 2008 when a series of financial institutions began failing.
Some also believe European Union bailout efforts won’t be enough to save the continent’s most troubled economies, including Greece and Portugal.
Financial fears are also being manifested in other ways, for example through gold prices, which have risen to an all-time high.