The stock market tumbled again Friday as doubts about the ability of European leaders to address a spiraling debt crisis on the continent overshadowed President Obama’s new proposal to spur U.S. job creation.
The Standard & Poor’s 500-stock index was off 2.7 percent for the day, and other U.S. indexes saw similar declines. European markets fell even more precipitously, with the French and German stock markets each down about 4 percent as finance ministers from the major industrialized countries gathered in the south of France to discuss how to deal with the spreading financial crisis.
Sept. 9 (Bloomberg) -- Socrates Lazaridis, chairman of the Athens Stock Exchange, discusses the Greek debt crisis and investor confidence.
Sept. 9 (Bloomberg) -- James Nixon, chief European economist at Societe Generale, talks about European Central Bank monetary policy and the Greek debt crisis.
FAQ: Europe’s debt crisis
Europe is facing problems that go beyond crisis-stricken nations such as Greece and Ireland, U.S. Treasury Secretary Timothy F. Geithner said in an interview with Bloomberg Television in Marseille.
“I think it is important the Europeans do what they need to do so their problems do not spread and add to the pressures of the world economy as a whole,” Geithner said.
But there were signs that European leaders’ consensus was splintering further. Reflecting the concerns over Europe’s divisions, the value of the euro fell to a six-month low against the dollar.
Juergen Stark, a member of the European Central Bank’s executive board, resigned Friday after raising internal opposition to the bank’s efforts to contain the continent’s debt crisis. In recent weeks, the ECB has been buying large quantities of Italian and Spanish bonds in an effort to prevent borrowing costs for those countries — two of Europe’s largest economies — from spiking to prohibitive levels.
Stark is the second German central banker to step aside. The ECB has been taking steps that are widely unpopular in Germany, where there is deep-seated opposition to bailing out profligate European neighbors. Axel Weber, the head of the German Bundesbank and a leading candidate to head the ECB, stepped down in April after growing uncomfortable with the institution’s policies.
Meanwhile, rumors were rampant in financial markets Friday that Greece could default on its debt as early as this weekend. The price to insure against default of Greek debt soared 16 percent in the market for credit default swaps, showing that investors view default as increasingly likely. Greek Finance Minister Evangelos Venizelos dismissed that prospect.
Greek Prime Minister George Papandreou is scheduled to deliver a televised address to his nation Saturday to defend the broad austerity measures adopted by his government. These steps, which other European countries are demanding as a condition of providing emergency loans to Greece, have sparked widespread and at-times violent protests.
European banks have been bracing for the possibility of huge losses on their holdings of Greek government bonds. Bloomberg reported Friday that the German government of Chancellor Angela Merkel is developing a “Plan B” to shore up German banks in case a tentative agreement over a new European bailout for Greece falls through and Athens defaults. The report helped send German stocks sharply downward, with the Dax plunging more than 4 percent Friday.