Stock market worries over eurozone economy and sanctions on Russia?

"Europe suffers from fatal politics." - Joseph Stiglitz, August 2014

Stock prices bobble around for a variety of reasons, not all of them rational.

But the eurozone depression and the additional burden of economic sanctions against Russia had an effect of general US stock prices, according to Callie Bost and Lu Wang of Bloomberg News, U.S. Stocks Decline on Ukraine Tensions, Europe Economy 10/01/2014:

Stocks fell today after Italy cut its growth forecast, German manufacturing shrank and euro-area factories lowered prices in September by the most in more than a year. The weakness underlined the mounting challenge facing policy makers before the region’s central bank meets tomorrow.

The European Central Bank is forecast to announce tomorrow details of its plan to buy asset-backed securities, after unveiled a series of stimulus measures to boost credit lending and combat the threat of deflation.

Equities also fell after a person familiar with German government policy said Russia risks an escalation of European Union sanctions if pro-Russian separatists make further military gains in eastern Ukraine.

With cease-fire violations being reported daily, the EU is far from considering an easing of the sanctions imposed on Russia for its encroachment on Ukraine, according to the official, who asked not to be named because he isn’t authorized to discuss the matter publicly.

The ECB is undertaking its own version of quantitative easing. It's unlikely to do much to jump-start the economy, which suffers from a serious lack of demand, not from inadequate funds for lending. But even that timid step is causing Angela Merkel to gnash her teeth in anguish.

Stephen King of HSBC writes about the deflationary pressures the currency zone creates on Italy and Spain, two of the "periphery" countries of the eurozone (To survive, the eurozone must embrace an “all for one, one for all” mindset Financial Times 09/11/2014):

Optimists – and those of a Teutonic disposition – will doubtless argue that Italy should attempt to emulate Spain, a nation that saw a massive loss of competitiveness ahead of the financial crisis but, through a combination of painful fiscal austerity and labour market reform, has finally turned the corner: the Italian economy may still be contracting but Spain is apparently enjoying a new lease of life.

The problem, however, is that Spain’s gains and Italy’s losses are intimately entwined. Falling Spanish labour costs have allowed the Spanish economy to deliver an “internal devaluation” associated with the onset of deflation. By definition, however, Spain’s internal devaluation has to be someone else’s internal revaluation: within the eurozone, Italy and France have lost out.

Had Italy and France followed the Spanish approach, Spain would have enjoyed less of an internal devaluation and the eurozone as a whole would now be staring even further into a deflationary abyss. This reflects a fundamental design flaw. Thanks to the global financial crisis and the eurozone ructions that followed shortly thereafter, we now know that, in the eurozone, what should be regarded as a system-wide problem requiring collective action is routinely misdiagnosed as no more than a series of individual misdemeanours.

Notice that Spain's supposedly having "turned the corner" means they are facing "the onset of deflation."

Maybe they should have picked a different corner.

He also notes the economically deadly effect of Angie's nationalistic leadership style:

Germany tends to blame what it often sees as the more profligate nations in southern Europe for running excessively large balance of payments current account deficits when those deficits are no more than the mirror image of Germany’s excessively large current account surplus and, thus, its savings “glut”. This “blame game” makes collective action in the face of widespread economic trauma less likely.

Unitl that changes, the eurozone is likely to be stuck with a continued, prolonged depression.