The market really started off when [European Central Bank chief] Trichet had that look of "We're not worried about what's going on in the markets" and the markets basically said, "Well, we will make you worried, because we think it is worrying what's happening with Greece and Spain and Portugal." So, asset prices fell very quickly and they'll continue to fall until the European authorities do something. And what we think they should do is launch what is known as a 'quantitative easing' program, whereby the central bank uses its balance sheet to buy assets and in so doing it will stem the contagion out of these countries into the banking system and thereafter into the real economy.
So, damage has been done, without a doubt and you are likely to see GDP estimates in Europe fall, but they won't fall too far so long as the ECB steps in.
There's an old adage, "Markets stop panicking when policymakers start panicking." That's what you should keep in the back of your mind the next couple of weeks. Once you see the panic, it'll be over.
~Michael Hartnett, Chief Global Equity Strategist, BofA Merrill Lynch Global Research, "Market Update: Is Volatility Back?", May 7, 2010