Why did markets fall?

Q. Why did markets react so badly?

A. Politicians, led by Merkel and Sarkozy, proposed a plan to cut deficits and reform their uncompetitive economies, stopping a crisis like this happening again. However, to work this long-term plan, politicians need short term help. They wanted the ECB to buy the debt of troubled nations. ECB boss Draghi had hinted he might go along with this, as long as government guarantees were in place. But Draghi snuffed out that hope, and markets’ optimism.

Q. didn’t the rate cut help?

A. Markets expected this cut, and had priced it in. One problem is that the vote to cut rates was not unanimous, suggesting future cuts are less likely.

Q. What can they do to save the euro now?

A. Today EU leaders are meeting to come up with a plan, which may involve begging from countries like China, or trying again to convince Draghi to bail them out.