Eurosceptics crow as Spain and Greece drag down euro
Markets around the world are falling on EU debt defaults and US unemployment figures
Global markets are continuing to fall today on concerns over European debt defaults and worse-than-expected US employment statistics and disappointing corporate earnings.
By mid-morning the FTSE had fallen 1.6 per cent to its lowest level in three months; the Nikkei was down 2.9 per cent overnight. Athens lost 2.5 per cent while Portugal stocks sank 4.5 per cent. The Dow is expected to fall further when it opens.
As the FT's John Authors noted this morning: "It is almost like old times... the global sell-off was as ugly as anything since the worst fears of the crisis began to abate last spring."
Investors are no longer spooked only by Greece's soaring sovereign deficits. A problematic sale of Portugese bonds, as well as mounting fears that Spain's economy is in deep trouble, are confirmation that the Greek contagion is spreading through peripheral European states.
The risk of sovereign, or national, debt defaults is now higher, according to the pink 'un. As a result, the value of the euro is falling while the dollar is rising despite bad US unemployment figures as investors seek safe harbour.
Further spooking the markets are concerns that the US may soon follow Britain in ending credit-easing initiatives, raising the question of whether economies can stand un-aided.
But this is the moment to crow for eurosceptics. Brussels has no mechanism for forcing weaker European members to adopt stricter financial policies. If central bankers do not ultimately bail-out stricken members, then these sick states could be suspended from the union.
For a country like Greece, which contributes only 2.5 per cent of the euro area's economic output, a bail-out is one thing: bailing out Spain or even Italy is of a different order of magnitude.
But the current bad mood is not limited to the European outlook. Nassim Nicholas Taleb, author of The Black Swan, said yesterday "every single human being" should bet US Treasury bonds will decline because of soaring US national debt that the White House predicts will not begin to decline until 2019 at the earliest.
Taleb says President Obama's soaring US deficits (standing at a record $7.27 trillion and being added to it at a rate of $1.6 trillion a year) "are like putting dynamite in the hands of children...
"The problem we have in the United States, the level of debt is still very high and being converted to government debt," he continued. "We are worse off today than we were last year. In the United States and in Europe, you have fewer people employed and a larger amount of debt." ·
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