Markets crash as fears over debt crisis deepens

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by a Newsnet reporter
 
Stock Markets around the globe have plunged as fears over the recent state of the US economy and the debt crisis in the Eurozone returned.
 
The Dow Jones was down 3.7%, the FTSE dropped 4,5% – its biggest fall since November 2008 – and the German DAX slumped by 5.5% as confidence in the global economy evaporated.

Investors have turned to the safe havens of gold, now over $1800 an ounce, and the Swiss Franc in a desperate attempt at protecting their portfolios.

There was concern that European banks may be over-exposed to the debt crisis in the Eurozone and the day saw Barclays and the Royal bank of Scotland down 11%, Lloyds Banking Group also fell sharply, down 9.3%.  All three banks have now witnessed their share value halve in just six months.

Germany’s Commerzbank fell 10.4% and France’s Societe Generale lost 12.3% as concerns grew that US banks could also suffer a knock on effect.  Analysts are now claiming that another banking crisis could be imminent.

The concerns over the global economy took hold after manufacturing in the US saw a slump and house sales also fell.  The US recently suffered the embarrassment of losing its ‘Triple A’ credit status as politicians argued over a package aimed at cutting the superpower’s massive deficit.

Morgan Stanley now say that both Europe and the US are “dangerously close to recession”.  The Investment bank criticised the US for the political standoff that saw the rescue package go to the wire, there was also criticism for Europe for “policy errors” in dealing with debt in the Eurozone.

Spain and Italy are two of Europe’s biggest economies and both are in suffering debt problems with interest repayments edging towards the ‘dreaded’ 6% mark.

The stock market fears come on the same day that the UK saw poor retail sales figures.  According to the ONS, UK sales growth was down 0.6% on last month – growth down to a paltry 0.2%, sales in clothing and footwear were down 0.3%.  Inflation increased to 4.4%, over double the 2% target and is expected to hit 5% when fuel price rises are taken into account.

Yesterday UK unemployment shot up by over 37,000 and is now sitting at 2.49 million.  Growth in the UK economy slowed to just 0.2% in the last quarter, down 0.3% from the previous spell.

A fragile UK economy is susceptible to the global situation and there are now very real fears that the UK is heading towards a double dip recession.  The UK’s ability to hold on to the much prized ‘Triple A’ credit rating is now looking to be increasingly reliant on the revenue from North Sea oil and less on the stewardship of the economy by Chancellor George Osborne.