Debt Crisis: stock markets plunge as G20 leaders call for action in Europe
World markets plunged today as fears of a global recession were reignited by a gloomy outlook from America's central bank and ongoing concerns about the eurozone debt crisis.
The FTSE 100 Index fell 5pc this afternoon after the US Federal Reserve flagged "significant downside risks to the economic outlook" and failed to inspire traders with its latest emergency measures to prop up the country's wavering recovery, which included a process dubbed Operation Twist.
The unusual move, designed to keep US interest rates lower for longer, disappointed markets, which had surged in recent days in hope that the Fed might embark on a third package of quantitative easing.
Investors were also shocked by comments from recently resigned European Central Bank board member Jurgen Stark who said that the euro project has been plunged into a debt crisis by the reckless spending of certain states and he also questioned its sustainability.
In a report he co-authored, the former top German official at the ECB said: “Greatly increased fiscal imbalances in the euro area as a whole and the dire situation in individual member countries risk undermining stability, growth and employment, as well as the sustainability of EMU itself.”
World Bank chief Robert Zoellick also rowed into the debate stating that the while he thinks a double dip recession is not likely, his confidence is lagging fast.
Head of the International Monetary Fund Christine Lagarde said the path to recovery is narrower than when the crisis first started.
The Dax in Germany dropped 4.3pc while France's Cac-40 fell 5.1pc following a similarly shocking performance on Wall Street, where the Dow Jones Industrial Average closed 2.4pc down.
Seven G20 leaders have sent a letter to French prime minister Nicolas Sarkozy urging him to take action regarding the present eurozone debt crisis.
The letter which was signed by leaders from Australia, Canada, Indonesia, UK, Mexico, South Africa, South Korea has stated that the path out of the current recession would be difficult and that action must be taken to restore international demand without exacerbating imbalances.
The letter also noted called for open markets, flexible exchange rates and warned against competitive devaluations.
Meanwhile, Greek rioters took to the streets as the Government announced a slew of new austerity measures.