Pending Doom in Greece and Other Euro Nations Drive U.S. Equities Lower
by Hiland Doolittle
Fears that Greece’s debt-ridden economy is just the tip of the iceberg continue to pressure the Euro and send ripples of stress throughout the 16-nation Euro zone and global markets. Greece’s GDP fell 3.6 percent in 2009 and is the country is mired in its worst recession in 50 years.
In the wake of 19% unemployment, a devastated housing market, overwhelming debt and an almost unimaginable budget deficit, the Greek economy has spiraled out of control. To further complicate matters, a massive labor strike has added fuel to the fire. Many euro zone nations insist that the government stabilize the environment before assistance is offered.
Worse yet, Spain and Italy may soon be added to the equation. With many of the same symptoms, Spain now faces a fearful 11.4% budget deficit of GDP. While euro zone nations have made gestures to rally on behalf of Greece, no remedy has been finalized. Meanwhile, Spain may present an even more complicated problem.
Facing all the ingredients for a depression, Spain has no control over its own solutions. As a member of the euro zone, countries cannot devalue their currency, implement quantitative easing or raise taxes to combat their deficits and spur the economy. The European Central Bank controls these decisions. The sheer size of the Spanish economy poses a more imposing problem than the failure of Greece.
International rating agencies, including Moody’s and Standard and Poor’s indicated a downgrade for Greece’s sovereign debt was a strong possibility. To stave off the rating decrease, the 16-nation euro zone nations will have to create a comprehensive rescue plan.
In Britain the FTSE 100 fell by 0.35%. The German DAX fell 0.12% and France’s CAC-40 fell 0.46%. U.S. equity markets continued to follow the trend set by the euro. Recent trend tracking suggests that as the euro goes, so goes U.S. equity markets. On only two days this year have the two segments been at odds.
Jobless Claims Jump
Reversing last week’s trend, first-time jobless claims jumped by 22,000 last week to reach a seasonally adjusted rate of 496,000. Projections had indicated a lowering to 460,000. The previous week’s figure for first-time claims was 473,000. Markets reacted swiftly to the news.
U.S. equity markets opened significantly lower and continued the slide well into the morning. The DOW Jones Index was down 156 points by 10:00 a.m.
Despite an impressive report from the Commerce Department showing orders for durable goods rose 3.6%, well ahead of the 1.5% projections, equity markets seemed focused on Greece and labor statistics. The January durable goods figures represented the largest increase since the 5.8% increase in July.
On Wednesday Federal Reserve Chairman Ben Bernanke stated the passive recovery in housing and unemployment markets mandated the central bank sustain lower interest rates. The Chairman held firm that the bank will halt troubled asset purchases in March. Bernanke’s comments were in keeping with market sentiment, but the Greece-Spain-Italy troubles weighed more heavily on investors than various U.S data reports.
Tags: Economy, Euro, European Central Bank, GDP, interest rates, recession, US GDP, US Unemployment
About the Author - Hiland Doolittle
Hiland is a professional writer with extensive entrepreneurial experience. He is a graduate of St. George’s School Newport, RI and the State University of New York at Albany where he majored in history. He has been active in the real estate business for 30 years and has founded and sold several businesses.
Hiland currently writes for several financial sites and is a published author of the novel The Last Parade. He has recently completed a manuscript for a children’s book entitled Sami and The Minnow Man.
