Fears over Greek crisis continue to drive down global markets

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Fears over Greek crisis continue to drive down global markets
By Bill Van Auken
8 May 2010

Despite the Greek parliament’s approval of drastic austerity measures, fears
that the country’s economic crisis will deepen and spread to other nations
continued to drive down international markets Friday.

The panic selling that saw the Dow Jones Industrial Average plummet by nearly
1,000 points, or about nine percent—a steeper drop than even in the wake of the
Lehman Brothers collapse in 2008—continued to reverberate around the world,
hitting markets in Asia and Europe and leaving share prices on the New York
Stock Exchange down again on Friday.

In Asia, Japan’s Nikkei 225 index was among the worst hit, closing down 3.1
percent on top of a 3.3 fall on Thursday.

Japanese Prime Minister Yukio Hatoyama told reporters Friday that “Japan is very
concerned about Greece’s problems and the government will deal solidly with any
fallout.” The Bank of Japan poured another 2 trillion yen (nearly US$22 billion)
into the country’s financial institutions. It marked the biggest emergency
injection by the central bank since December 2008. There are growing concerns
about Japan’s own mounting national debt.

In Europe, the FTSE 100 in London was down 2.6 percent; Frankfurt’s DAX fell
3.27 percent and the CAC-40 in Paris dropped 4.13 percent.

After another day of hectic trading on Wall Street, the Dow closed down nearly
140 points, or 1.33 percent. This came on top of Thursday’s 3.2 percent drop.
The index has now fallen by nearly 7.5 percent compared to last month, and most
financial analysts predict that the decline will continue.

The media, led by the talking heads on the cable television financial programs,
cast about for explanations for Thursday’s market seizure, pointing to
computerized trading and even a so-called “heavy finger” trade in which it was
rumored that a trader for a major US bank had mistakenly substituted “b” for “m”
and sold billions instead of millions in stock.

This theory was largely discounted before the trading was over Friday. No one
could verify that such a trade had been made, and financial analysts pointed out
that under conditions of an otherwise healthy market, such an error would have
had a negligible effect.

The US Security and Exchange Commission, meanwhile, announced that it is
launching a probe of Thursday’s trading to see if the staggering fall in share
prices was connected to any “irregularities.”

Serious analysts could not obscure the obvious, however. The sell-off on the
international markets was the result of a growing panic among the world’s ruling
elites over the events in Greece.

Investors watched live television coverage of tens of thousands of Greek workers
battling riot police outside the parliament building in Athens and suffered a
severe crisis in confidence, not just in Greek debt, but in the stability of the
world capitalist system generally.

There was a palpable fear that similar eruptions are on the horizon throughout
Europe, Asia and in the United States itself as governments pursue similar
measures to those being imposed in Greece as a means of forcing working people
to pay for the massive debts of the banks and for the ballooning public deficits
that have been incurred to prop up the financial sector.

As the Washington Post reported, the continued plummeting of share prices on the
world stock markets was being driven by “evidence of a scary proposition: That
the fiscal crisis that began in Greece months ago is spreading across Europe
like a virus, causing growing doubt even about the fate of nations with far more
manageable levels of government debt.”

This includes Spain, which has come under increasing financial pressure, despite
having considerably less debt, compared to the size of its economy, than Britain
or the United States.

The result of this “contagion effect,” the Post continued, is that investors are
selling off their investments in other countries’ debts, creating a kind of
self-fulfilling prophecy. These countries, in turn, must pay “higher and higher
interest rates to get any loans,” unleashing a “fiscal death spiral.”

New York Times economic analyst Floyd Norris wrote Friday that “fears are
growing that Europe, which is worried that the crisis in Greece could be
followed [by] ones in Portugal and Spain, will follow the pattern laid down by
the United States government in 2007, when officials offered frequent
reassurances that the sub-prime mortgage problem was ‘contained’ but delayed
taking the bold action that finally did stop the panic.”

Mohamed A. El-Erian, the chief executive of the money management firm, Pimco,
told the Times: “There is a recognition that the Greek crisis has morphed not
into not only a European crisis, but is going global.”

This sense that the Greek events pose a grave threat to the world capitalist
economy found expression in an emergency teleconference held Friday by the
finance ministers and central bankers of the Group of 7—United States, Germany,
Japan, Britain, France, Italy and Canada.

Canada’s Finance Minister Jim Flaherty told reporters after the conference that
all those participating grasped the “urgency” of the crisis and understood “the
need for a clear, timely and strong response.” He gave no indication, however,
as to what that response would be.

In Germany on Friday, the parliament voted to approve the country’s share of the
110 billion euro ($140 billion) Greek rescue package put together by the
European Union and International Monetary Fund.

German Finance Minister Wolfgang Schäuble warned, “It would be devastating to
even risk a chance of Greece, a member of the euro zone, going bankrupt.” The
result, he suggested, would be the end of Europe’s common currency, the euro and
the entire project of capitalist unification of the continent.

In Brussels, meanwhile, the heads of state of the 16 Eurozone nations met Friday
evening to discuss final details on the EU section of the financial package. The
prerequisite for the meeting was the vote by the Greek parliament the night
before to pass a sweeping and draconian package of austerity measures that
resembled the kind of International Monetary Fund “shock therapy” programs
imposed in much of Latin America during the debt crisis of the 1980s and 1990s.

The bitter opposition of Greek working people to being forced to pay for the
crisis created by the financial elite erupted into pitched battles between
demonstrators and riot police outside the parliament building in Athens.

Controversy over the package approved by the Greek legislators continued to
build on Friday with the announcement by Finance Minister Giorgos
Papakonstantinou that the legislation would allow the government of Prime
Minister George Papandreou to sign agreements with the EU and the IMF without
first submitting them to parliament.

Papakonstantinou said that the EU had demanded the provision, and that the
government immediately accepted it to expedite the loan disbursements.

http://wsws.org/articles/2010/may2010/econ-m08.shtml

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