Friday, June 01, 2012

'Beware a rerun of the Great Panic of 2008': Head of World Bank warns Europe is heading for 'danger zone' as world markets suffer bleakest day of the

The head of the World Bank yesterday warned that financial markets face a rerun of the Great Panic of 2008.

On the bleakest day for the global economy this year, Robert Zoellick said crisis-torn Europe was heading for the ‘danger zone’.

Mr Zoellick, who stands down at the end of the month after five years in charge of the watchdog, said it was ‘far from clear that eurozone leaders have steeled themselves’ for the looming catastrophe amid fears of a Greek exit from the single currency and meltdown in Spain.

The flow of money into so-called ‘safe havens’ such as UK, German and US government debt turned into a stampede yesterday.

In Berlin the two-year government bond yield fell below zero for the first time, with the bizarre result that jittery international investors are now paying – rather than being paid – for lending to Germany.

There was a raft of dismal economic news from around the world, with manufacturing output falling in Britain and Europe, unemployment jumping in the eurozone and America, and fast-emerging economies such as Brazil and China showing signs of running out of steam.

The FTSE 100 index fell 60.67 points to a new 2012 low of 5260.19 in London and the pound tumbled against the US dollar to $1.5234 – a level not seen since January.

The Dow Jones Industrial Average shed more than 200 points in New York, wiping out all its gains this year.

Borrowing costs in Spain and Italy have soared back above 6 per cent towards the 7 per cent level that triggered bailouts in Greece, Ireland and Portugal.


Mr Zoellick warned that the coming months could be as bad as the collapse of US investment bank Lehman Brothers in 2008.

He said: ‘Events in Greece could trigger financial fright in Spain, Italy and across the eurozone. The summer of 2012 offers an eerie echo of 2008.

‘If Greece leaves the eurozone, the contagion is impossible to predict, just as Lehman had unexpected consequences.’

Fears are mounting that Spain will be crippled by its banking sector and will be the next domino to fall.

Mr Zoellick said: ‘Eurozone leaders need to be prepared to recapitalise banks. In the eurozone, the guarantees of some national sovereigns are unlikely to be sufficient and only that of the “euro-sovereign” will suffice.


‘It is far from clear that eurozone leaders have steeled themselves for this step. Eurozone leaders need to be ready.


'There will not be time for meetings of finance ministers to discuss the outlook and debate the politics.


'In panicked markets, investors flee to safe assets, sparking other flames.’


Yesterday investors scrambling for lifelines piled into German, US and UK government debt.

Not only did the German two-year bond yield fall below zero for the first time, but also the yield on ten-year UK gilts – the benchmark borrowing cost for the British Government – hit a record low of 1.44 per cent.


The yield on the equivalent US treasuries fell to 1.46 per cent – the lowest in over 200 years of records.


‘People’s objective is the return of their capital, not the return they get on their capital,’ said Sam Hill, a strategist at Royal Bank of Canada.

÷ Ireland has accepted tough new budget controls, as stipulated under the European fiscal treaty, in a referendum which saw 60 per cent of voters backing the deal.

Mail Online

1 Comments:

Blogger Ira Morse said...

I think it is already clear, that if Greece will depart from the Euro Zone, Greece will suffer from many economic problems, like business bankruptcies, and market turmoil. Did the Greeks prepared for this one?








By: exchange rates

1:44 AM  

Post a Comment

<< Home