Silvio Berlusconi. In Italy, ratings agencies have been raided by the police. Photocredit: europeanpeoples party http://www.flickr.com/photos/eppofficial/5865708087/sizes/z/in/photostream/
It’s economic armageddon! Again! The FTSE 100 (the benchmark share index for the UK) and Germany’s Dax index have fallen by roughly 2.5 per cent. About £50 billion has been wiped off London’s blue chip companies. The US debt deal hasn’t done us any favours; nor has the unseemly Greek bailout. Spanish shares, meanwhile, fell, but then swiftly recovered their original position. Whilst the Eurozone crisis continues to drag itself along like the beast slouching towards Bethlehem to be born, the widening gyre gets wider amidst fears of US economic faltering. Sterling has strengthened (hooray!), whilst the Japanese yen and the Swiss franc have also surged. And yes, everyone’s putting their money in the mattress, in the form of lovely shiny gold bars. My precious!
In the land of the economically troubled, the ratings agency is king. But news has arrived that police have raided the Milan offices of Moody’s and Standard & Poor’s (such lovely names) in order to see if they’re abiding by regulations.
- Quis custodiet ipsos custodes? John Hooper reported on The Guardian that police, acting on orders from Italian prosecutors, have raided the offices of Moody’s and Standard & Poor’s in Milan to investigate their role in the current financial crisis – just as they agencies are about to consider downgrading Italy’s credit rating. Investigations began last May when two consumer groups complained about a report that said Italy was at risk from the Greek economic crisis. S&P and Moody’s have categorically insisted that the raids have no foundation. Hooper reported that Elio Lanutti (president of one of the consumer groups that sparked the inquiry) said: “The three ‘sisters’ – Standard & Poor’s, Moody’s and Fitch – are an erratic danger to state sovereignty in the areas of economics and finance.”
- Yay for Britain! Ian Dunt on Politics.co.uk took the angle that the markets are “extremely pessimistic” about the American debt deal, which has left everyone unsatisfied. Spain and Italy are having to pay more interest on their debts, leaving many “openly worrying that the world economy could be about to replay the crash of 2008.” Gold is on the up, as is sterling, which makes George Osborne happy, since it’s “proof that the markets are treating Britain as one of the few major western economies that can be trusted in the current climate.”
- Don’t get too excited. Recovery is as anaemic as a vampire’s face, implied Robert Peston on BBC News. There’s real fear that governments won’t be able to repay their debts. Morgan Stanley (the investment bank) has been warning about a new credit crunch for southern European banks – which could “infect and undermine” northen banks too. This could lead – you’ve guessed it – to economic slowdown. We need “a circuit breaker in the transmission mechanism of fear.” That comes in the form of the European Financial Stability Fund – but bankers say it needs “4 trillion euros of firepower,” which would leave Germany with enormous liability. And the Germans won’t like that. Which, “to state the obvious, is why we are living through such nerve-wracking times.”
- The view from across the pond. The picture in America ain’t so great either, said Daniel Indiviglio on The Atlantic. The backwards trend has continued: the US economy needs to break out of its “funk”. Consumer spending was “virtually flat”, though retail sales actually increased. People are saving, too, which is a good thing, though indicative of “wary consumers.” The housing situation’s awful; so is business activity and the job market. The Japanese earthquake, coupled with unrest in Arab nations, have contributed to the crisis, but we shouldn’t let that trouble us too much. What we need is for food and energy costs to “relax a bit”, then “the recovery could get back on track.” But even with “that best-case scenario, we would likely be heading back into excruciatingly slow recovery-mode, not a sudden boom.”