Market crash triggered by European Debt Crisis

Thursdays 4.31 percent drop put the Dow below 11,500 and is the worst one-day loss since October 2008, when the Dow slid by 679 points.  What triggered the market meltdown?  Many believe the debt crisis in Europe was responsible.

On Thursday the European Central Bank attempted to hose down the debt crisis fire that is sweeping across Europe. The European Central Bank moved after a four-month pause to buy government bonds in response to a debt catastrophe that started nearly two years ago in Greece, and now threatens to overwhelm Italy and Spain.

It was only a few months ago that European bankers were scrambling to protect Spain from defaulting on its debt.  Spain’s troubles now pale in comparison to Italy’s.  It is Italy that Europe and the world are deeply worried about.  Italy’s debt volume is two-and-a-half times larger than Spain’s.

Italy’s impact on the Euro zone is enormous.  In just this month, Italy must repay €36 billion in government debt. That is roughly what Greece will receive this entire year in European loans.  Large investors such as pension funds and insurance companies are pulling out of Italy and investing in Germany—considered to be far more stable than Italy.

The Debt crisis in Europe and America is smothering the so-called “economic recovery”.   The economic map of the world is in a state of flux; global markets are desperately searching for stability.

Steven LeBlanc

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