As discussed in James’ post yesterday Italy is the latest of the PIIGS to be in the firing line with investors and media alike turning their attention to the debt ridden peninsula. The major scare for investors is that the Eurozone cannot simply afford another bailout for the indebted nations. The current safety mechanisms the EFSF (European Financial Stability Facility) and EFSM (European Financial Stability Mechanism) cannot cope with having an Italian bailout. Eurozone Finance Ministers are busy running round figuring what exactly they can do to get out of this dire mess.
Recently we have seen Euro strength or at least a lack of Euro weakness as plan after plan is unveiled to shore up the massive levels of debt engulfing the PIIGS. This is true particularly against a weak pound which is very much exposed to the Eurozone debt crisis through our banking sector. This latest challenge to the Euro is more severe because there is currently no direction or signs of immediate resolution. There is the guaranteed rhetoric that this will be dealt with but it seems these piecemeal solutions are not just being picked by the various critics of Eurozone economic policy. The Greek Prime Minister George Papandreou has called for ‘convening a series of closed working meetings-of leaders, advisers, and technical experts that can offer effective, possibly even far-reaching solutions in place of one-off and ad hoc responses’
Considering that Eurozone Finance Ministers are running out of options, and with arguably one of the main beneficiaries of Eurozone assistance openly dismissing the current approach, there must surely be more crisis to develop from this situation. There is a real lack of cohesion and an inherent inability to look to the root and cause of the problems. It has been said this is one of the fundamental problems with the Eurozone, that of managing multiple economies with a single economic policy. The cracks are getting bigger and the powers that be are simply ‘painting themselves into a corner’ as they run out of options.
GBPEUR has improved creating some fantastic buying opportunities as today’s high of 1.1429 dwarfs last week’s low of 1.1046.
I think there is a little bit more in the can to be kicked down the road and would be suprised if the Eurozone Finance Ministers don’t come up with another solution that will calm the markets. Also the figures for growth in the UK look worrying reflecting a slowdown in the rate of growth for the economy. This leaves a door open for much sterling weakness later this month, look out for 26th July when the official GDP figures are released (Q2 first revision).
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