It’s rather terrifying that the last time that the FTSE 100 had such a bad three days was after the collapse of Lehmann Brothers in 2008. The markets, as displayed on the front of the BBC website, are all in the red. The S&P 500, an index of American stocks, has lost almost 10% of its value in the last nine trading days. European stock markets are looking incredibly shaky.
The situation in Italy, the Eurozones third biggest economy (after Germany and France), is looking increasingly precarious. The yield on Italian bonds are now at 6.27% meaning, in essence, that it is increasingly expensive for the Italian government to borrow money.
The Italian Prime Minister response yesterday: “I don’t think the markets will get worse,” They did. He then went on to suggest that people buy should shares in his company.
Italy’s debt of €1,900bn is nearly three times that of Greece, Portugal and Ireland combined and, if they are sucked into a sovereign debt crisis, there simply won’t be enough cash in the EU bailout fund. According to the Guardian a former band of England policy maker has called for the the fund to ‘be expanded to €2.5 trillion’. If Italy was to hit serious trouble, which is still seen as relatively unlikely, the rest of Europe would be facing potentially catastrophic economic problems.
It’s hard to get your head around this weeks global economic slide. Some economists, like Joshua Raymond, suggest that it is linked to the budget turmoil across the pond at the beggning of the week. The chance that the US might lose its AAA credit rating is certainly forcing caution on the markets and investors are increasingly moving towards the safe havens of the Swiss Franc and the Japanese Yen. The markets now wait with baited breath for Job figures from the US (announced at 1.30pm today) though early indications are not looking hugely positive.
There are murmurings, though quite quiet at the moment, that we could be facing another global crisis. But surely Clegg, Cameron and Osborne wouldn’t all still be on holiday if that was the case.
Read Larry Elliott’s piece for more.