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Stocks surge over eurozone rescue plan
Question of the Day
Wall Street surged Thursday to multiyear highs after the European Central Bank provided more information about an unlimited bond-buying program that could save troubled countries from leaving the eurozone, possibly preventing another global recession from reaching the U.S.
The Dow Jones industrial average, Standard & Poor’s 500 index, and Nasdaq composite index all hit record highs under President Obama.
The Nasdaq soared 66.54 points to 3,135.81, hitting its highest level in 12 years. The Dow jumped 244.52 points to 13,292, reaching its highest point since December 2007. The S&P gained 28.68 points to 1,432.12, its highest mark since January 2008.
The markets were also boosted to a lesser extent by expectations of a positive jobs report, which will be released on Friday.
The program was first announced at an ECB meeting on Aug. 2, and previously hinted at by President Mario Draghi in late July, when he said, the central bank “will do whatever it takes to preserve the euro. And believe me, it will be enough,” but few specifics were provided until Thursday’s monthly meeting.
The ECB promised to buy as many bonds as necessary along with implementing tough structural reforms.
Thursday’s development is expected to ease growing concerns that Greece would leave or be kicked out of the eurozone if it doesn’t solve its financial problems.
Experts say a Greek exit and the economic chaos it would create could complicate Mr. Obama’s re-election efforts.
“It would give ammunition to the Republicans,” IHS Global Insight chief U.S. economist Nigel Gault said. “Republicans would point to Europe and say, ‘We’ve been saying that the U.S. has too much debt, and therefore, it can be a problem for the economy. You need to bring in Republicans who will reduce the deficit and deal with the debt.’ It would be used to attack the president.”
Starting over outside the eurozone would mean switching to a new currency. Investors are afraid of waking up and finding overnight the euros in their bank accounts have been converted to less valuable drachmas, or pesetas, or lire.
“Nobody really wants to (submit to structural changes), because they lose control over their fiscal policy, they lose sovereignty,” Moody’s chief economist Mark Zandi explained. “So it could be that they wait and wait and wait, and investors get concerned that they won’t do it and start selling bonds.”
Even with the eurozone intact, bond sell-offs and bank runs in Greece, Spain or Italy could still spark another global recession, Mr. Zandi said, potentially impacting the American presidential election.
Mr. Gault agreed.
“The rest of the world will be engulfed in this crisis,” he said. “It would show up in the financial markets immediately, so if people see stock markets falling around the world, that’s going to scare them. It would definitely influence the mood and make people more pessimistic about the future.”
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About the Author
Tim Devaney is a national reporter who covers business and international trade for The Washington Times. Previously, he worked for the Detroit News, Grand Rapids Press, Portland Press Herald and Bangor Daily News. Tim can be reached at email@example.com.
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