Stocks Drop Globally and the Euro Rose Awaiting Bailout News for Spain

Written by on October 24, 2012 in Money - No comments | Print this page

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One of the most prominent pieces of business news to garner attention recently was the issues with Spain, and their possible request for a bailout. This tension and the uncertainty cause a number of things to happen, as one might expect. The euro strengthened against the dollar, while many of the major stock markets fell. The big reason that many believe that the stock markets were falling was because of the uncertainty behind the entire situation. Investors were unsure of when Spain would make the request for a bailout, and this made investors a bit nervous regarding their third quarter earnings.

Differing Opinions in Europe on Bailout

You will find across Europe some differing opinions regarding the timing for the bailout. Many in Europe believe that Spain is ready to make their request for a bailout soon – possibly within the first week or two of October. While this might be true, it is not something that others are relishing. Germany, for example, has made mention that it might be a better idea for Spain to wait on the bailout request, at least for now.

Is the Bailout Really a Good Idea?

The bailout, while it might not be something that people want to do or to have happen, could actually be a good thing, not only for the economy of Spain, but for the economy of much of Europe as well. What are some of the positive outcomes that might happen if, and when, the bailout does occur? There would likely be more bonds bought by the European Central Bank, and this would have a positive effect inside the economy of Spain. It would lower the borrowing costs of the country. In addition, it would help to settle the cloud of negativity and doubt that has been plaguing the country’s economy for years, which could in turn help to boost the internal economy and get it back onto its feet.

Not Out of the Woods

Of course, the bailout is still up in the air, and Spain, at the time of this writing, has not yet made a request. This means that there is still plenty of instability in their economy right now, and this is having an effect on other parts of the world economy. The Spanish Prime Minister even said, basically, that the request for aid from Europe was not in the cards quite yet. However, what might be happening behind the scenes is not yet clear.

Investors Remain Nervous

Because of all of this ambiguity, it is only natural that so many investors right now are on edge. They are unsure of what to do, and they are watching the stocks drop while they are waiting. Frustration seems to be the name of this waiting game, at least for right now. One of the other things that are causing some nervousness among investors is the upcoming review of Spain’s financial rating from Moody, the rating agency. They may well lower the rating for Spain, which could have quite a devastating effect not only on Spain, but also on investors. You can be sure they are paying attention to the business news each day to see what might be happening.

As you can see, the economies of the world co-mingle. They intertwine too much that a change in one area affects everything else, just like tipping over a single domino. From the U.S. to China to Australia, Japan, and countries around Europe, Spain’s bailout could have some long-term repercussions, both good and bad. It is going to be interesting to watch the business news and to see what happens in Spain in the coming weeks and months and to see how that affects everything else that is in the chain.

This is a guest post.  Bradley Michaels is a finance blogger for The-European.eu, offering UK business and finance news to readers around the world.

Image courtesy of Kaddy64 / FreeDigitalPhotos.net

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