European Stocks Plummet, Euro Leaders to Blame

You may have heard recently that the global stock markets have not been performing that well. American, European, and Asian markets experienced a rapid decline of the kind not seen since the crash of 2007-2008. Of course, this crisis was precipitated by the downgrading of America’s credit rating, which sent investors across the world running scared. The incompetence of the American government on the debt issue has been well-documented and need not be discussed here. Despite the fact that this crisis has been caused by U.S. legislators, the stock markets of Europe experienced significant deterioration and rapidly eroded the limited confidence which had been constructed to protect Europe’s most beleaguered governments. If the private sector cannot be persuaded that the European economy is secure, it will prove ever difficult to find the capital to sustain growth. EU officials should be doing everything they can to reassure the world that the EU has addressed its financial problems; unfortunately, some EU officials seem to have missed that memo.

Tempting as it is to blame all of these problems on the U.S. Congress and the extreme right-wing Tea-Party, the error by America’s leaders only re-opened the recently healed wounds of the European sovereign debt crisis. Concern arose that the mechanisms developed by the European Central Bank (ECB) to support indebted governments would no longer be sufficient to prevent defaults. Consequently, the ECB moved to purchase first Irish and Portuguese, and then Spanish and Italian, bonds, reassuring the private sector that these countries would remain solvent, and even coincidentally moving Europe ever closer to a unified bond market.

No individual can be blamed for this crisis; rather it is a product of long-held ideological convictions. However, I would like to take this opportunity to point the finger at a lesser known but equally culpable individual: European Commission President Jose Manuel Barroso. On August 3rd, two days before the U.S. received the fateful news from Standard & Poor’s, Barroso issued a press release in which he described the performance of Italian and Spanish bonds as "deeply troubling." Admittedly, the intended goal of this statement was to explain the actions being taken by the EU to solve the problem. But this single sentence from a leading official did more than enough damage. The European stock market would probably have fallen in value regardless of Barroso but his comments undoubtedly exacerbated an already difficult situation.

Markets are based on belief. In any economic transaction all the participants believe they will be better off after the transaction takes place than they are currently. It does not matter if this belief is based on fact. As long and the belief exists the transaction will take place. The problem with Barroso’s statement was that it called into question the judgment of anyone who may have thought the EU had resolved its debt problems. Any confidence that remained that the vulnerable European states were on the mend quickly dissipated as the headlines began to emerge: "Bond market developments are deep concern, says Barroso."

On the whole, the current measures outlined by the European Council look like they may very well address many of the problems that the EU faces. Unfortunately, nobody read this part of the press release, as they were too busy calling their brokers to sell all of their European investments.

Photo Credit: Wikimedia Commons 

How much do you trust the information in this article?

Matthew Hutchinson

Matthew Hutchinson is a recent graduate of Indiana University’s School of Public and Environmental Affairs having previously earned a Master’s degree in European Studies at the University of Westminster. In the spring of 2010 Matthew won the University of Toronto’s Silvia Ostry Prize in Public Policy. His work has also appeared in Public Policy and Governance Review, The Journal of Environmental Studies and Sciences, The Indiana Business Review and Incontext magazine.

MORE FROM

Amid new revelations, here’s what we’ve learned about the Russian lawyer who met with Trump Jr.

The picture of Natalia Veselnitskaya is coming into clearer focus.

Republican Senator urges whoever leaked Russia/Sessions phone calls to release whole conversation

Sen. Chuck Grassley wants the person who leaked intelligence about Attorney General Jeff Sessions and Russian ambassador Sergey Kislyak to come forward with more information.

Donald Trump Jr. and Paul Manafort now to testify before Senate committee behind closed doors

Trump Jr. and Manafort have avoided a subpoena and will testify behind closed doors — for now.

Hope Hicks reportedly tried to rein Trump in during explosive ‘Times’ interview. It didn’t work.

The low-profile Trump Whisperer is one of the few in the president's orbit to enjoy job security.

Scaramucci once asked Obama if he’d be softer on Wall Street. It didn’t end well.

The exchange came during a CNBC town hall on the financial crisis, two years into Obama’s presidency.

Trump blasts Hilary Clinton, Comey and ‘Amazon Washington Post’ in tweet storm

He also defended Don Jr. and called Democrats "obstructionists" with "no ideas."

Amid new revelations, here’s what we’ve learned about the Russian lawyer who met with Trump Jr.

The picture of Natalia Veselnitskaya is coming into clearer focus.

Republican Senator urges whoever leaked Russia/Sessions phone calls to release whole conversation

Sen. Chuck Grassley wants the person who leaked intelligence about Attorney General Jeff Sessions and Russian ambassador Sergey Kislyak to come forward with more information.

Donald Trump Jr. and Paul Manafort now to testify before Senate committee behind closed doors

Trump Jr. and Manafort have avoided a subpoena and will testify behind closed doors — for now.

Hope Hicks reportedly tried to rein Trump in during explosive ‘Times’ interview. It didn’t work.

The low-profile Trump Whisperer is one of the few in the president's orbit to enjoy job security.

Scaramucci once asked Obama if he’d be softer on Wall Street. It didn’t end well.

The exchange came during a CNBC town hall on the financial crisis, two years into Obama’s presidency.

Trump blasts Hilary Clinton, Comey and ‘Amazon Washington Post’ in tweet storm

He also defended Don Jr. and called Democrats "obstructionists" with "no ideas."