Analysts said there was a heightened belief that Asian economies and the US could decouple from the problems in Europe.
“The theory of a decoupling of the rest of the world from the problems in the eurozone seems to be taking hold, following the theory frequently heard in 2008 of the emerging markets decoupling themselves from the recession of the industrialised world,” said Ulrich Leuchtmann at Commerzbank.
He said the reasoning was obvious: the exposure of the financial systems in Asia and the US to the stricken countries of the eurozone was small and economic effects were small as Asia, not Europe, was the engine of the global recovery.
“It makes no difference short-term whether the decoupling theory is correct or not,” said Mr Leuchtmann.
I agree the selling was overdone. The EU has proposed a $1 trillion dollar package to help with the situation. Governments are cutting spending (which is good and bad at the same time). In short -- action is being taken.
HOWEVER, anytime I see the word "decoupling" I laugh. The reality is the world is incredibly inter-connected now; there is no way the impact of one region does not impact another region. It's just not possible. Witness the inverse trading relationship between the dollar and the euro.
