Markets nosedive after German minister's remarks
Investors remain hopeful that world finance ministers will agree to a comprehensive plan for European banks.
US stocks tumbled on Monday as chronic worries about Europe's debt crisis persisted. Mixed earnings reports from Citigroup and Wells Fargo, as well as a weak report on regional manufacturing, also drove the market downwards.
Although the markets are down, investors have reason to be optimistic.
Traders were optimistic last week after world finance ministers pledged to take whatever steps are necessary to ensure that banks remain capitalized. The sovereign debt crisis in Greece has imperiled several European banks, and the pledge to protect those banks was inspiring confidence through last week.
However, German finance Minister Wolfgang Schaeuble cooled the market by saying that a solution to Europe's debt crisis was unlikely to come out of a much-anticipated European Council meeting on Sunday.
The European Council is scheduled to meet next Sunday in Brussels. Many officials had promised a comprehensive plan to protect the banks and to help cope with Europe's sovereign debt problems, but the likelihood of reaching a comprehensive agreement is admittedly slim.
After Schaeuble's comments, US stocks ended a two-week rally.
Whether or not a recovery or a recession occurs, is largely in the hands of international finance ministers and bankers, and their willingness to commit whatever funds are necessary to keep European banks solvent.
European banks are holding the greatest amount of Greek debt. A Greek default would start a chain reaction that could cause a deep, long-lasting worldwide recession. The nightmare scenario would see Greek payments to the banks come to a halt. The banks, without the payments on which they depend, will themselves be unable to meet their own financial obligations. This would force the banks to default, and likely close. As financial institutions collapse, billions of dollars could vanish within days. The world economy could be plunged into the deepest recession since the Great Depression.
While some experts say that a Greek default is inevitable, because Greece simply has too much debt and too many problems to fix, it doesn't necessarily mean that the international economy must also collapse. By promising banks the money they will need to stay in business following a possibly Greek default, investors will be inspired to keep their assets in the banks.
The recent pledges and efforts of European leaders to ensure the capitalization of these banks, has made cautious investors hopeful that they can return to the market. Renewed confidence in the markets will encourage growth, and spending which will create jobs and opportunities for people worldwide.
Although hopes for a quick and comprehensive agreement may have been dashed on Monday, they remain high that such an agreement will soon be reached.
© 2011, Catholic Online. Distributed by NEWS CONSORTIUM.
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Pope Benedict XVI's Prayer Intentions for January 2013
General Intention: The Faith of Christians. That in this Year of Faith Christians may deepen their knowledge of the mystery of Christ and witness joyfully to the gift of faith in him.
Missionary Intention: Middle Eastern Christians. That the Christian communities of the Middle East, often discriminated against, may receive from the Holy Spirit the strength of fidelity and perseverance.
Keywords: Euro zone, finance ministers, Greek debt crisis, banks, recapitalization, bail out, recession
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