Stocks sank on Friday, as concerns grew that Europe’s efforts to solve its sovereign debt crisis were faltering.
The Dow Jones industrial average plunged 304 points, or 2.7 percent, to end the week at 10,992. The S&P 500 dropped 32 points, or 2.7 percent, to 1,154. And the Nasdaq composite index declined 61 points, or 2.4 percent, to finish at 2,467. The sell-off was the sixth weekly decline in seven weeks for the Dow and S&P 500, CNN reports.
Stocks initially fell on the news that European Central Bank executive board member and chief economist Jürgen Stark had resigned. Stark opposes the ECB’s policy of buying government bonds to ease investor pressure on countries like Greece and Italy, the New York Times reports. His sudden departure revealed divisions behind the scenes in an institution that’s critical for stabilizing the euro zone.
According to the New York Times:
The ECB has often been the main institution holding the euro zone together in the face of relentless market pressure. Last month, the ECB began buying Spanish and Italian bonds on the open market after yields rose to potentially ruinous levels.
But the bond-buying program is risky, because markets are likely to continually test the ECB’s resolve to bolster the weaker countries.
"When you get a new story like this, that there's internal turmoil on the ECB, that immediately has implications for the bond-buying program, which immediately has implications on the capital level in European banks," Jack de Gan, chief investment officer at Harbor Advisory Corp in Portsmouth, N.H., told Reuters.
Stocks fell further in the afternoon on reports that Germany was preparing to shore up its banks to protect them against a Greek default.
"There's a lot of nervousness that Greece could default this weekend, and Greek bonds yields keep rising," Joe Saluzzi, co-head of equity trading at Themis Trading, told CNN. “The financial contagion could be pretty bad, so investors are getting out now and waiting to see how all of this will shake out."
Stocks in Europe also slumped after the announcement of Stark’s departure. Britain's FTSE 100 fell 2.4 percent, Germany’s DAX dove 4.1 percent and France's CAC 40 declined 3.2 percent.