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Explainer: Why are the markets in chaos, and should you be worried?

Here’s everything you need to know about today’s worldwide fall on stock exchanges.

A screen at the Australian stock exchange today
A screen at the Australian stock exchange today
Image: Rick Rycroft/AP/Press Association Images

MAJOR STOCK MARKETS in Europe and elsewhere have fallen sharply today amid rising fears over the future of Eurozone countries.

So far today London’s FTSE 100 index has fallen by 2.25 per cent, with Germany’s DAX down by 2.1 per cent and the Dublin exchange by 1.3 per cent. The declines have hit headlines worldwide amid a sense of rising panic on the markets. But what exactly does this mean – and should ordinary people be worried? TheJournal.ie went looking for answers.

What makes the stock markets fall?

The percentage figures which are hitting headlines simply mean there has been a decrease in demand for stock in companies. “You’re seeing indexes like the Dow Jones and the S&P 500 going down because people are getting out of risky stocks,” says economist Stephen Kinsella. “They’re moving their money into so-called safe areas like Swedish krone, the UK gilt market, and gold.”

This movement shows that market traders are concerned about the lack of resolution in the Eurozone debt crisis, coupled with lower-than-hoped-for economic growth in the US – which is why the media are paying close attention. It’s no coincidence that the two concerns have arisen simultaneously, as events on the two continents are closely linked in the global economy. “One is a consequence of the other, and vice versa,” Kinsella says.

Are these drops bigger than normal?

Yes. “We’re seeing a significant fall,” Kinsella says. But what’s important isn’t the daily figure – it’s the fact that the decline has been going on for several days. “The FTSE dropping by 2.2 per cent doesn’t really matter. What you need to look at if it’s down 2.2 per cent today, and yesterday, and the day before.” The value of the FTSE 100 has fallen consistently by almost nine per cent since Monday, making this a significant event in market terms.

Should the average person be worried?

No – at least, not for now. “What’s happening is simply that people are selling stocks that they think are risky, and buying safer stuff. Those are the fluctuations that we’re seeing,” Kinsella says.”It will not affect the average person’s life one way or the other.The sky will not fall down. This is just rich people moving their money around.”

However, there could be real-life consequences down the line. It’s possible that ongoing instability will prompt the EU to produce “a rescue package that provides for a huge amount of austerity – meaning tax more and spend less,” Kinsella says. “That will mean the average person has less money in their pockets.”

Read: European markets open… and it’s not good news >

Read more simple explainers from TheJournal.ie >

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About the author:

Michael Freeman

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