The events in Washington and Wall Street over the past week have diverted our attention from the Middle East and the European Union. Although concern about individual portfolios is warranted, the stock market decline is not limited to the United States. In some respects, the collapse of the European Union has been beneficial to our country as reflected in the recent strengthening of the dollar index and lower oil prices (not yet seen at the pump).
However, instability in Europe will impact the world’s economy and the possibility of expanding military action if the Jasmin Revolution is able to exploit their financial collapse is a possibility throughout northern Europe. It appears the the European Central Bank will not be a major part of future actions. Let’s hope that the IMF (meaning the United States) will not bail Europe out.
* Central bankers say Italy, Spain must act for ECB help
* France’s Sarkozy to talk to German, Spanish leaders
* China, Japan, EU urges world leaders to cooperate
* Markets losing confidence in EU’s handling of debt crisis
The leaders of Germany, France and Spain will hold crisis talks about Europe’s spiralling debt crisis on Friday after China and Japan called for global policy cooperation following a market rout.
Despite demands for action, the European Central Bank offered only limited help and told Italy and Spain — now under heavy fire — to take tougher austerity measures before it will step in to buy their bonds.
The call from China and Japan, Washington’s two biggest foreign creditors, highlighted fears that Europe’s debt crisis could spin out of control and the U.S. economy may go into reverse, worries which have wiped $2.5 trillion off the value of world stocks this week.
The ECB reactivated its dormant bond-buying programme on Thursday in an attempt to address the euro zone’s deepening sovereign debt crisis, but only bought Portuguese and Irish debt. Influential members of the ECB opposed even that.
Central bank sources told Reuters that four out of 23 ECB governing council members, including powerful German Bundesbank chief Jens Weidmann, voted against the decision to resume any bond purchases.
Traders said the central bank intervened for a second day on Friday, but was again only buying Portuguese and Irish paper. Pressure eased on Italian and other peripheral debt but Italy’s 10-year-yields overtook those of Spain for the first time since May 2010 and both yields remained above 6 percent, confirming investors concerns about the lack of action.