Tuesday 13 September 2011

Problems in Europe and markets plunging

The Stockenthusiast.com reports:

Last Friday Chief Economist Jurgen Stark surprisingly resigned from his position at the European Central Bank (ECB). Stark, Germany’s top representative at the ECB, claimed that his departure was due to “personal” reasons but it is assumed that his decision was fueled by his frustration over the bank’s expanding role in backstopping the eurozone’s peripheral members.


Stark is the second senior German official to leave the ECB in recent months over ideological differences. These resignations couldn’t come at a worse time for the ECB as they deal with southern Europe’s sovereign debt issues. Which is why some economists are now predicting a major ” shake up” in the eurozone in the near future.


“The announcement fuels two paths of speculation,” writes BTIG chief global strategist Dan Greenhaus. “Either the Germans are slowly laying the groundwork for removing themselves from the eurozone or pressure from Germany will eventually lead to the ouster of Greece from the zone.”




Personally, I think it’s more likely that Greece leaves the euro. The country is once again teetering on insolvency and it’s already been bailed out. Yet the concern is what the repercussions will be for the global economy if this were to happen.


As a result investors from around the world are getting increasingly nervous. On Friday the Dow Jones Industrial Average dropped 304 points, or 2.7%, the German DAX fell 4%, and Italy’s FTSE MIB finished down 4.9%. The euro had its worse one-day drop since July 11 and is trading at 7 months lows and the 10-year Treasury tumbled below 1.90% intraday, the lowest level since World War II, before settling at 1.92%.



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