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Debt Downgrade

Eurozone woes weigh on markets

Stephen Beard Aug 8, 2011
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JEREMY HOBSON: In Europe, markets are done, but not by a ton. To find out what’s going on let’s bring in Marketplace’s Stephen Beard. He’s with us live from London. Good morning, Stephen.

STEPHEN BEARD: Hello, Jeremy.

HOBSON: Well, Stephen, bring us up to date. Why such stoicism in Europe this morning?

BEARD: Well, Europe it seems, has been less concerned about the U.S., more focused on its own debt problems today — and there’s been a little burst of optimism on that score, this morning.

HOBSON: And, that I’m assuming, Stephen, is because we’ve got the news this morning that the European Central Bank is going to come to the rescue again?

BEARD: Exactly. Part of last week’s meltdown in Europe was due to the debt crisis here spreading. Investors were dumping the government bonds of Spain and Italy — people who were prepared to buy these bonds were demanding a higher rate of interest to compensate for the risk, and that was pushing up the borrowing costs of these governments, making it more likely that they’d need bailing out. Well, last night, the European Central Bank indicated that it would buy Spanish and Italian government bonds — and that had a fairly dramatic effect on the interest rate on these bonds — fell sharply and stock markets in Spain and Italy actually jumped by more than two percent. A welcome relief, thanks ironically to the S&P downgrade. Here’s Steve Barrow of Standard Bank.

STEVE BARROW When we do have some, fairly calamitous event, in this case, obviously the downgrade in the U.S., officials normally respond and very often that can produce a short term recovery in the market.

HOBSON: A short term recovery, Stephen? Does that mean the European debt crisis could be back?

BEARD: Oh, certainly. I mean this is a temporary measure. The ECB can’t go on buying Italian government bonds. There are $2.6 trillion of them out there. But, the European markets have been calmed, for now. Of course, all our eyes will then be on Wall Street, when that opens, later today.

HOBSON: Marketplace’s Stephen Beard, in London. Thanks, Stephen.

BEARD: OK, Jeremy.

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