Global markets slump on eurozone debt and US recession fears
Rehn cut short his holidays and rushed back to Brussels to address journalists on Friday.
He opened his comments by saying that markets have not reacted as expected to the measures previously agreed by euro-area Heads of State and Government on July 21.
Stock markets around the world nosedived on Friday, following a day in the red for European and US markets. Investors are nervous at the prospect of a sudden slowdown in the US economy, as well as having the eurozone debt crisis on their minds.
Major EU markets plummeted on Thursday, with the euro sliding against the dollar over uncertainty about the ability of Italy and Portugal to stave off an impending crisis. On the same day, the European Central Bank tried to calm nervous markets by offering more emergency credit.
Now there are growing fears that the eurozone debt crisis could also spread to Italy and Spain.
The two countries have entered crisis talks with the EU as their gilts hit critical new highs. Investors are pulling out of France, Italy and Spain – the second, third and fourth largest eurozone economies.
The euro crisis virus is spreading wider – France and Belgium are expected to be next in line for trouble.
The UK’s Financial Services Authority has asked British banks to reveal how much debt they hold in Belgium on fears that their country could be next to face financial problems.
Meanwhile Olli Rehn denied that Italy or Spain would require a bailout.
“The market unrest witnessed in the last few days is simply not justified on the grounds of economic fundamentals. It is not justified for Italy. It is not justified for Spain. Such dramatic changes in the markets are incomprehensible. It is not as if the fundamentals of the Italian or Spanish economies have changed overnight!” Rehn said.
German Chancellor Angela Merkel is to hold a conference call with French President Nicolas Sarkozy and Spanish Prime Minister Jose Luis Rodriguez Zapatero to discuss the situation.
The ongoing sell-off follows the biggest one-day points decline on Wall Street since the 2008 financial crisis, AP reports.
There are now fears that America will go back to recession which would strike a blow not just at the US but the whole world economy.
Bankers say neither Europe nor the US have really started to tackle their key issues.
Meanwhile, US and European politicians continue to reassure the public that everything is ok.
Britons are deeply concerned about key politicians being away from the country amid growing turmoil in the markets.
Foreign Secretary William Hague assured Britons that despite the Prime Minister David Cameron, his deputy and the Chancellor all being on holiday, the British government is monitoring financial situation “extremely closely”. He stressed that they are in touch with their counterparts in Europe and the US.
"'The Government is always operating 24 hours a day, we're not in the 18th century, of course everyone is constantly in touch by telephone or whatever means necessary,” William Hague said. ''So the Government is fully functioning in response to this crisis and indeed to anything else that is happening in the country or in the world.''
On Friday he held an urgent meeting in central London on the economic crisis and spoke to David Cameron earlier in the morning.
According to Mark Geary, president of the International Executive Search Federation, the ongoing turmoil has seen banks and governments swap the roles they held during the 2008 crisis.
“Previously, we had a banking crisis where the banks had lent too much money. The banks have undergone considerable change and reform: they have strengthened their balance sheet, they have had the stress test,” he said. “What we are seeing now is a fiscal crisis. It is where governments have not balanced their books.”
Geary added that now it is time for the banks to rescue their governments.
“I think it is ironic,” he said. “Previously, the governments had to come to the aid of the banks and now that some of the economies are not in good condition themselves, because the governments spend more than they are bringing in, now they are going cap in hand to their banks, saying ‘You have got to support us’ and obviously banks do not like that.”