Stock markets around the world plunged again yesterday as fears persisted that the global economy could slip back into recession.
The FTSE 100 Index has seen 9.8%, or £147.9 billion, sliced off its value in the past week — its worst performance since October 2008 when Lehman Brothers collapsed and the credit crunch began in earnest.
Markets across the world are in meltdown as traders panic that America will lead the global economy back into recession and the eurozone will be crushed under the weight of its debts.
Political leaders from across the eurozone were urged to take a decisive grip on Europe's sovereign debt crisis last night before the continent plunged back into recession.
World stock markets yesterday suffered another day of rollercoaster volatility, with no single leader or central bank taking charge of the response to the turmoil.
Conflicting signals from political leaders and financial authorities prompted huge swings among traders. Another rout on the markets was only prevented by better-than-expected unemployment figures from the US.
Meanwhile, politicians and businessmen lamented the failure of European leaders to act in concert. Romano Prodi, the former president of the European Commission and former Italian prime minister, said bluntly: “We don't know who is in charge.” He warned of “a problem of power in Europe” and criticised “the weakness of EU institutions”.
The former Europe minister Denis MacShane said the escalating eurozone crisis “exposes a Europe whose institutions no longer work”. The pro-European MP said that the EU's legitimacy was ebbing away and that drastic reform was needed.
The Italian Prime Minister, Silvio Berlusconi last night said that G7 finance ministers will meet “within days” to discuss the developing crisis.
The Foreign Secretary William Hague, who is the most senior member of the Government left in Britain because David Cameron, George Osborne and Nick Clegg are on holiday, urged Spanish and Italian politicians quickly to set out their own plans for public-sector cuts.
“It's very important that Spain and Italy demonstrate to the satisfaction of markets the credibility of their intentions to bring their deficits and debts under control,” he said.
Both Mr Cameron and Mr Osborne were forced to interrupt their respective holidays for crisis talks with other leaders.
Mr Osbourne spoke over the phone from his Californian holiday home with the the governor of the Bank of England Mervyn King. Mr Cameron also held a phone call with the German Chancellor Angela Merkel to gauge the German reaction to the crisis.
The chairman of Goldman Sachs Asset Management, Jim O'Neill, said that ending the crisis “will not be possible from the beach”.
In the UK, the FTSE 100 fell another 2.7 per cent, wiping £38bn off the value of Britain's companies, taking the week's losses to almost 10 per cent.
The banking sector was again hit hardest, with Royal Bank of Scotland and Lloyds Banking Group, the two taxpayer-owned banks, both losing more than 20% of their value this week.
Stock markets on the continent were calmer, following signals from the European Central Bank that it will now intervene more directly in the debt crisis, while the US stock market was also up in early trading.
Nevertheless, at the end of the worst week for stock markets around the world since the crash of 2008, heads of government from across Europe attempted to respond to calls for them to show more leadership. Many interrupted their holidays for a frantic round of telephone diplomacy to try and head off further market falls.
Mr Berlusconi yesterday announced a package of measures including further economic liberalisation and a constitutional amendment to make a balanced budget mandatory.
Meanwhile, the French President, Nicolas Sarkozy, held separate calls with his Spanish counterpart Jose Luis Zapatero and the German Chancellor Angela Merkel who is on a walking holiday in Italy.
However, behind the scenes, Europe's leading nations appeared to be at odds over how to respond. A source at the European Central Bank said the Italian reforms were the price it had demanded to offer its support to the country. Meanwhile, Norbert Barthle, an adviser to Ms Merkel, launched an attack on the European Commission President Jose Manuel Barroso, blamed by many for sparking Thursday's stock market falls after his call for a reassessment of the eurozone's bailout fund. Mr Barthle described Mr Barroso's remarks as “counterproductive”.