New EU rescue plan on the cards
European Central Bank officials have come under increasing pressure in recent weeks to step up their response to the worsening European sovereign debt crisis. These concerns hit the headlines again over the weekend when Christine Lagarde, Head of the IMF, called for immediate action, stating that the organisation had enough funds to meet its current debt obligations to debt-riddled Eurozone nations, but that if debt contagion spread to other more significant European economies, then the IMF might not be able to offer help.
However, market rumours suggest that the EU / IMF is about to announce a bold rescue plan to provide help for Eurozone nations struggling to service their current debts. The package will significantly bolster its ability to offer bail-out assistance by increasing the funds available to the ECB’s bail-out fund, the European Financial Stability Facility (EFSF), from its current level of €440bn to €2 trillion. The increase in emergency funding should cover all potential European debt scenarios in the short-to-medium term, causing a pick-up in investor sentiment towards the Euro. However, whispers are emerging that the IMF is proposing that Greece writes down 50% of its current debt obligations to private investors, a move which would place significant pressure on the European retail banking sector.
At the moment, the currency markets are focussing on the negative element of the rumoured IMF rescue plan, causing the Euro to give up ground. This has seen the GBPEUR rate gain over 1.5c from its Friday close in this mornings trading.
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