Top European officials have sounded the alarm on the economic turmoil gripping emerging economies, while downplaying speculation that it could destabilise the just-recovering Euro Zone.
“We have seen turbulence in several places in recent days, from Argentina to China,” EU Economy Commissioner Olli Rehn had said on Monday.
“[It] should serve as a reminder that risks are still present and that we cannot afford any complacency.”
Dutch Finance Minister Jeroen Dijsselbloem, who chairs the Euro group panel of Euro Zone finance ministers, said: “Of course we are worried about this. I am worried for the emerging countries and what that will do with the economic strengthening taking place there.”
The growing concerns about the health of emerging economies have led to market instability, with Japanese stocks plunging on Monday and a sell-off in European shares continuing into the new week.
Dijsselbloem said he is “not particularly worried about the risk of contagion” to the Euro Zone, which exited recession last year but has been struggling to leave its economic crisis behind for good.
“Europe has come a long way,” he said. “Investors seem to have shifted their worries to other parts of the world, which is from a European perspective of course a good sign.”
Argentina has been at the forefront of the international concerns, after its move last week to abandon support for its currency in the open market led to the peso’s biggest drop since the 2002 financial crisis.
The Argentine peso lost 18 per cent of its value against the dollar last week, and a total of 22 per cent so far this month.
The Government had imposed tough restrictions on buying foreign currency, even for travel. Individuals were not allowed to buy dollars for private saving, a common practice in a country where inflation exceeds 20 per cent per year.
However, even amid these and other hurdles, the South American country’s reserves had dropped sharply in recent months.
After last week’s devaluation, the Argentine Government had moved on Monday to ease some of the restrictions and allowed individuals to again buy dollars relatively simply, under certain conditions.
Observers believe that the US Federal Reserve’s move to wind back its monetary stimulus programme has also been at play.