Concern about sovereign debt of some EU members roils markets

February 5, 2010

Global stock markets fell steeply on Thursday on investor concerns about the growing of European Union member states Greece, Portugal, and Spain. A report of a rise in weekly jobless claims in the United States contributed to the market gloom. The index fell the most in over nine months. Currency and commodities markets also posted major moves.

The euro fell more than one percent against the US dollar to an eight-month low; against the it fell 2.2%, approaching a one-year low. The fell 5% to US$73.14 per barrel and gold slid 4.4% to US$1,063 per ounce.

Greece's Prime Minister, George Papandreou, announced an program, but that is now threatened by plans by the largest trade union for a national strike. In 2009, Greece's budget deficit was 12.7% of the nation's (GDP). Papandreou's plan called for that to drop to 3% by 2012.

Gary Jenkins of Evolution Securities told the , "[t]he risk aversion trade is back on as the debt problems of Europe are for the first time bringing down global markets. Corporate earnings may come in strongly [in the US], but investors are more concerned about the possible default of a sovereign European nation." "This is a sovereign problem, and it's hitting everything," said Keith Springer of Capital Financial Advisory Services to Reuters. "If other European countries are having trouble like Greece, then it's a big problem for banks, and the banks are the foundation for everything. European banks will be in trouble and that will carry over to all stocks."

"The focus is shifting toward Spain and Portugal, where the deficit-reduction plans have been far less ambitious than Greece," said Kornelius Purps of UniCredit Markets & Investment Banking to.

Concerns in Portugal centered on political tension surrounding a regional spending bill. In Spain, the source of worry was reportedly because the government backed down from promised pension reform.

European Central Bank President sought to ease investor fears, in part by noting that the deficit in the US is expected to hit 10% of GDP in 2010, compared with about 6% in the. He said that he was "confident" that Greece is moving in the right direction.

Trichet did admit that it is of "paramount importance" for Greece, Portugal and Spain to get their public finances under control.