Global shares continue to plummet

Article published on the 2008-10-16 Latest update 2008-10-16 15:29 TU

Ben Bernanke
(Photo: Reuters)

The fragile global economy is showing no signs of stabilising, despite worldwide government attempts to aid banks. European shares opened dramatically lower on Thursday after falls in Asia that saw Tokyo's Nikkei index down by 11 percent. London's Ftse opened five per cent lower while the Cac 40 in Paris was down six per cent. Global falls have largely wiped out the gains earlier in the week, as fears of recession cancel out optimism from the US banking rescue package.

"Stabilisation of the financial markets is a critical first step, but even if they stabilise as we hope they will, broader economic recovery will not happen right away," Federal Reserve Chairman Ben Bernanke told the Economic Club of New York on Wednesday.

Concerns over the economy sent the Dow Jones industrials down by 733 points earlier Wednesday, erasing hopes that the problems that have shaken Wall Street for a month were over.

Earlier this week the markets appeared to be calming after governments around the world announced plans to use trillions of dollars to bail out banks, including a US plan to buy about 185 billion euros in bank stocks.

But not everyone is convinced that stabilising stock prices is the root of the problem.

“The stock market collapse is a side show. Even today, [the problem is] the credit crunch", says Dider Marteau a professor at the ESCP Business School in Paris. "Nobody trusts nobody. If banks cannot borrow from other banks, they cannot lend to corporations and other people”, Marteau told RFI.

Setting up a worldwide regulatory framework should be the priority if a recession is to be avoided, he said.

European Union leaders are meeting in Brussels to finalise the details of their two trillion banking bailout, in the hope that further agreement on their approaches would give markets more confidence.

Leaders of the world's top economic powers, the Group of Eight countries have said they would meet "in the near future" for a global summit to tackle the financial crisis. The group consists of the United States, Japan, Germany, France, Britain, Italy, Canada and Russia.