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European Debt Crisis

Lending tightens in Europe as Euro falls

Stephen Beard May 25, 2010
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European Debt Crisis

Lending tightens in Europe as Euro falls

Stephen Beard May 25, 2010
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Global stock markets have dropped to their lowest level in nine months as investors become increasingly concerned about the ever-falling euro. New concerns are rising over banks reluctance to lend to each other, a fact evident as a key bank interest rate, the London Interbank Offered Rate or LIBOR, has doubled since March. LIBOR concerns were hot at the peak of the global credit crunch, when financial firm Lehman Brothers collapsed banks essentially stopped lending to each other, but are currently not near those levels according to Marketplace’s Stephen Beard.

Interbank interest rates indicate fear of government defaults

A larger concern in the markets is that the upward movement of interest rates is most significant in Europe, and that this could impact loan repayment for heavily-indebted governments like Greece, Spain, Portugal and Italy. European banks have lent almost $3 trillion to these southern European countries.

Richard Hunter of the stockbroker group Hargreaves Landsdowne says overhanging market sentiment is focused on default. “The concern is we may yet see a default by one of these countries and that, in itself, could derail the global economic recovery.”

World markets also falling

World markets are feeling pangs of sympathy for Europe; Dow Jones industrials have fallen below 10,000 as investors fear an economic slowdown. South Korea’s currency has fallen to a 10-month low on news that North Korean leader Kim Jong-Il is preparing military forces for war. Though the South Korean government hasn’t confirmed the move, BBC reporter John Sudworth says the news has made investors nervous enough to impact trading.

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