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Markets fell sharply yesterday after the European Central Bank (ECB) disappointed investors, hoping for quick action to contain the region’s ongoing debt crisis.
ECB president Mario Draghi, who last week pledged to do whatever it takes to save the euro, said the central bank would gear up to buy bonds on the open market, but would only act once eurozone government have activated bail-out funds to do the same.
Any intervention would start in September at the earliest, dependant on distressed countries making a formal request and accepting strict conditions and supervision.
Disappointment over the apparent lack of immediate action saw the FTSE 100 Index close down 50.52 points, or 0.9 per cent. The CAC 40 in France and Germany’s Dax fell more than two per cent, while Spain’s Ibex tumbled a massive five per cent.
Meanwhile, a new, International Monetary Fund (IMF) “spillover” report examining how policies of key economies, (the United States, China, euro zone, Japan and the UK) impact on one another and the rest of the world was released yesterday.
If found the ongoing euro crisis was the biggest concern held by world policy makers, who feel not enough has been done to stop it.
Euro zone output could be cut by five percentage points if the crisis was not reined in properly at this point, the IMF noted. Resultant impact to the world’s poorest countries could push up external financing needs by some $27 billion by the end of 2013.
Elsewhere, slower investment in China, while necessary to rebalance demand to consumption, would hit trade partners and world prices. A one percentage point cut in Chinese investment growth for instance, would have huge impact on Asian suppliers and also affect Germany.
The IMF also said the United States must remove the threat of a so-called “fiscal cliff” in 2013, with $4 trillion worth of expiring tax cuts and automatic government spending reductions.
Thirty five countries, including emerging economies Brazil, Czech Republic, India, South Africa, Turkey, Russia, South Korea, Poland, Mexico and Saudi Arabia were consulted for the report.
