August 5, 2011
In recent days, the euro crisis appeared to be under control again, but market declines this week have shaken European leaders. Speculators are mercilessly testing the weaknesses of the euro rescue package, and European Commission President Barroso is calling for the bailout fund to be increased.
Panic ruled on the international stock markets on Friday. The German DAX index of blue-chip companies is on the decline, and on Wall Street and in the Asian markets, traders are shedding stocks in large numbers. One market strategist called it a "bloodbath." And investors are also looking at euro-zone problem states. Yields on Spanish and Italian 10-year government bonds have risen in recent days to their highest levels since the introduction of the common currency.
Uncertainties on markets actually should have calmed this week. The United States prevented a federal default on its debt at the last minute, and in Europe the results of a special summit on the euro at the end of July were celebrated as a success. But now, of all times, the mistrust of investors has penetrated the markets at full force. They fear that economic growth will stall and that nations worldwide will fall further into debt spirals.
In Europe, the European Central Bank (ECB) and politicians are reacting with alarm. The ECB is again buying government bonds from crisis-plagued countries, including Ireland and Portugal. European Commission President José Manuel Barroso also sent a letter to European heads of state and government in which he raised the idea of expanding the euro rescue fund, so that, in the worst case scenario, the large economies of Italy and Spain could be rescued. German Chancellor Angela Merkel and French President Nicolas Sarkozy planned to call each other by phone on Friday. In addition, Sarkozy was slated to confer with Spanish Prime Minister José Luis Rodríguez Zapatero by phone.
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