There is only one story in the European press this week – the turmoil1 that has engulfed2 world markets.
A few weeks ago everyone was talking about the credit crunch3. This rather cosy4 term has now been replaced in the press by ‘financial crisis’, reflecting the broadening and deepening of the emergency.
As stock markets opened on Monday, shares plummeted5 across the world. On Tuesday, US stocks hit their lowest levels in five years, while Japan's Nikkei closed down 952.58 points, or 9.4%. Hong Kong's Hang Seng index closed 6.2% lower and markets in Australia, China and Taiwan all fell.
The sharp downturn in the markets has continued despite massive government interventions6 in the banking7 system.
On Saturday, the US Congress finally passed a $700bn (4.7 trillion Yuan) bail-out plan. The US government will buy the bad mortgage debts which triggered the crisis in exchange for a stake in the banks they rescue.
On Monday, the entire economy of Iceland came precariously8 close to bankruptcy9. The government introduced emergency legislation to allow them to effectively run banks’ operations.
Today it was the British government’s turn, offering banks that are interested a slice of £50bn (596 billion Yuan) in exchange for a stake. It is also offering loans of up to £250bn (2.98 trillion Yuan) which banks can use for a fee. Banks won’t lend to one another at the moment, so the hope is that this measure will increase liquidity10 – get money flowing again.
This is vital since the ripples11 of the credit crisis are already reaching smaller businesses, who have seen their interest rates on loans increase. Consumer confidence is also down, affecting sales on the high street.
If the plans work and banks in the UK and US recover, tax-payers in both countries could make a profit from their governments’ interventions. If the plans fail, the banking system will simply collapse12.
Either way, we should be prepared for another escalation13 in language, as the ‘financial crisis’ perhaps becomes a ‘severe economic recession’.
the high street