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Fallout: The Financial Crisis

Fear sends global markets reeling

Marketplace Staff Oct 6, 2008
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Fallout: The Financial Crisis

Fear sends global markets reeling

Marketplace Staff Oct 6, 2008
HTML EMBED:
COPY

TEXT OF INTERVIEW

Kai Ryssdal: Stock markets all over the world took it on the chin today. Asia, South America and Europe as well. We’ve got Stephen Beard on the line from London for an explanation.

Hello Stephen.

Stephen Beard: Hello Kai.

Ryssdal: Quite a weekend over there, kind of like the kind that Ben Bernanke and Henry Paulson used to have over here. What is going on?

Beard: Well in a word disarray, or no make that two words, political disarray. Markets here in Europe were absolutely spooked today by the EU’s failure at the weekend to come up with a common approach. A Europe-wide response to the crisis. So, a program, a unified program on anything like the scale of the Paulson rescue package. Now the leaders of the four big EU economies– Germany, France,the U.K. and Italy– met on Saturday. Issued a bold declaration that they would work together and coordinate their actions and so on. And then that united front promptly fell apart the next day.

Ryssdal: It’s all about bank deposits isn’t it?

Beard: That’s right. At the Saturday summit, Germany criticized Ireland and Greece for going it alone last week on this issue, and introducing a 100-percent guarantee on their bank accounts. The Germans said this is unilateral action, it’s very devisive, it would lead to account holders in EU countries with lower levels of deposit protection. Emptying their accounts and pouring the money into Ireland and Greece. Blow me down the very next day on the Sunday to the fury of the Brits on French, the German leader Angela Merkel did exactly the same thing. Reassuring all German account holders that all their deposits would be safe. Now, they did come out subsiquently and say, this is not a legal guarantee, but a political commitment–subtle difference– but the damage was done. The disarray was apparent.

Ryssdal: Trying to figure out what markets want is always a tricky thing, all you have to do is look at Wall Street today to see that that’s true. What do the European markets want from regulators and the politicians over there?

Beard: Well they want unity and they want these leaders to get together and to address the fundatmental problem, which of course as we now know is confidence and trust, to get the commerical banks lending to eachother again. To get credit flowing through the system. And the view seems to be that really the only way this is going to happen now is with a massive coordinated program to buy up all the troubled or toxic assets. We are talking here about, you know, many hundreds of billions of euro. And the market seems to be saying this has got to happen fast before this chronic lack of liquidity turns into a wholesale lack of solvency, with thousands of financial institutions going bust.

Ryssdal: Are they going to get what they want?

Beard: No. Or at least not yet. I mean, the EU leaders this afternoon published a solemn statement in the wake of all this market mayhem saying, ‘we are united, we’ll do everything it takes, we are together.’ But it was rather light on specifics. That statement clearly didn’t cut it. It didn’t stop the rot, equity markets continued to slide.

Ryssdal: Let me ask you this though Stephen before we go. Is it fair to say that European version of the credit meltdown has now become its own, self-contained little crisis?

Beard: Yes. There was a rather smug assumption here that most of the havoc would be contained in America. Well we’ve seen that argument is now disintigrating and it’s very clear that the crisis has arrived and is raging through Europe.

Ryssdal: Stephen Beard at the Marketplace European desk in London. Thank you Stephen.

Beard: OK Kai.

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