Today's Coming Crisis Movie

Friday, September 16, 2011

Central banks step in as European debt crisis goes global

As European banks find it increasingly harder to get cash they need to operate, central banks from around the world opened their vaults Thursday to head off another credit crunch like the one that crashed the financial system in 2008 and sent the global economy into a deep recession.

Exactly three years to the day after the collapse of Lehman Brothers touched off a credit panic, confidence in European leaders is fading as they scramble to head off a default on Greek debt and ease fears that Italy may headed for the same fate.

After a year and half of failed attempts at a solution, the world economy has entered A “dangerous new phase” International Monetary Fund Managing Director Christine Lagarde said in a Washington speech Thursday.

“Without collective resolve, the confidence that the world so badly needs will not return,” Lagarde said.

The crisis stems from a downward economic spiral that has trapped Europe’s weaker economies, starting with Greece. Burdened by a debt load that exceeds its gross domestic product, the Athens government has been forced to cut spending and raise taxes to convince stronger economies like Germany and France to backstop its bonds. But those budget cuts have sent the Greek economy lurching in reverse, shrinking economic growth and forcing deeper cuts in services and higher taxes. more