G20 Announcement Fails To Calm Fearful Markets
September 23, 2011 TheFreshOutlook  |
The global economic crisis persists as politicians seem unable to provide the kind of rhetoric that will calm the markets.
After one of the sharpest one day falls in recent times, markets rallied briefly this morning after an announcement by G20 ministers last night that it would “take all necessary actions” to provide stability to the financial system.
“We are taking strong actions to maintain financial stability, restore confidence and support growth,” said a G20 statement. It continued: “This will require a collective and bold action plan, with everyone doing their part.”
Despite opening higher this morning, Asian and European markets soon returned to lower levels. Analysts say that investors simply don’t believe that governments are prepared to undertake the action necessary to stop the world entering into another recession.
“Until politicians back their words with actions in respect to move closer to a solution to the eurozone debt crisis, markets will continue to worry about a messy and painful outcome,” said Jane Foley at Rabobank.
The main concern centres on the eurozone sovereign debt crisis, with talks over averting a Greek default continuing to shroud the markets with uncertainty. If Greece does default, there is a widely held fear that other indebted states will follow suit. This fear has been exacerbated recently by doubts over Italian sovereign debt.
The markets have been calling for an increase in the size of the European Financial Stability Facility (EFSF); the mechanism used for bailing out debt ridden countries. Over the past 18 months, Greece, Ireland and Portugal have all had to be rescued from default by the EFSF.
However, because the economic outlook remains so bleak, the populations of larger EU states have began to question whether they should continue to pay for, what they see as, the mistakes of others.
This sentiment is crystallised by the German reluctance to consider the idea of Eurobonds, which would mean an effective pooling of eurozone debt. A German court recently ruled that it would illegal for German leaders to enter into such an arrangement. Yet many economists have said that this remains the only viable solution to the crisis.
G20 financial ministers are currently meeting in Washington. A news conference is expected later.
The next G20 summit, which brings together the premiers of the world’s twenty biggest economies, is due to take place in Cannes on November 3 and 4. Unless dramatic new measures are announced between now and then, the world is likely to fall back into recession.
By Dermot Tobin
[Image Courtesy of stvcollins]
