Turmoil on stock markets persists

5 August 2011 Last updated at 10:16 ET

Continue reading the main story

Instability on the stock markets has continued, despite better-than-expected US jobs figures.

There have been sharp falls in the past 24 hours amid a crisis of confidence due to the eurozone debt crisis and concerns about weak economic recovery in the US and Europe.

A fall in the US jobless rate caused the US markets to open higher and gave temporary relief to European indexes.

But London’s FTSE and Frankfurt’s Dax were soon down about 2% again.

European markets had been down as much as 4% in the morning, before recovering, and then lurching back down again by mid-afternoon.

Analysts suggested the relief in the markets was only temporary as the main reason for the concerns had not gone away.

“Fears over the eurozone debt crisis have sent markets into free fall over the last few days, and although recently announced US employment data may give markets some short-term reprieve, these fears are likely to continue,” according to the think-tank Open Europe.

Earlier, the EU’s Economic and Monetary Affairs Commissioner, Olli Rehn, said he thought the movements were “incomprehensible” and “not justified by the economic fundamentals”, particularly in Italy and Spain, the latest focus of investors’ concerns.

Attempting to reassure the markets, he said: “The political will to defend the euro should not be underestimated.”

He stressed that measures to improve the scope and effectiveness of the 440bn-euros rescue fund, the European Financial Stability Facility (EFSF), agreed last month, should be in place by September.

On Thursday, European Commission President Jose Manuel Barroso called on eurozone countries to approve those changes as soon as possible, but also to consider expanding the fund further.

Leaders to talk

Mr Barroso also said that authorities were failing to prevent the sovereign debt crisis from spreading. “We are no longer managing a crisis just in the euro-area periphery,” he said.

His comments triggered sharp falls in markets across Europe because of fears that Italy and Spain might become engulfed in the crisis which has led to Greece, the Irish Republic and Portugal already being bailed out.

That sentiment ripped across the world, hitting markets in Asia and the US, where the Dow Jones index had its worst day since December 2008, closing 4% down.

In a morning of sharp fluctuations on Friday, shares in Milan and Madrid fell back but then recovered following rumours that the European Central Bank is preparing to buy Spanish and Italian bonds to try to help those countries.

The European Central Bank was said to have bought up bonds issued by the Irish and Portuguese governments on Thursday. But traders were concerned that the bank did not appear to have intervened to help Spain and Italy, whose borrowing costs have risen significantly recently.

On Friday, the head of the Belgian central bank and ECB governing council member, Luc Coene, said that a buy-back of Italian and Spanish debt was possible – if Rome and Madrid pressed ahead with economic reforms.

The gap between German bonds – the safest in Europe – and Spanish and Italian debt again reached a record since the euro was introduced in 1999.

This latest crisis of confidence has come at a time when many of Europe’s leaders are on holiday.

German Chancellor Angela Merkel was expected to hold a telephone conference with French President Nicolas Sarkozy and Spanish Prime Minister Jose Luis Rodriguez Zapatero later to discuss the latest problems in the eurozone.

UK Prime Minister David Cameron, who is on holiday in Italy, discussed the financial situation with the governor of the Bank of England, Mervyn King, on the telephone earlier.

— ’re ’s , . : A ‘Malign Intellectual Subculture’ – George Monbiot Smears Chomsky, Herman, Peterson, Pilger And Media Lens.