EU Finance Ministers look set to increase the EU bailout fund. Early indications from this week’s meeting to discuss the crisis show there is lots of talk regarding working together and of dealing with the problems more effectively and promptly. Emmanuel Barroso, the European Commission’s President has stated that they should take advantage of the current lull in the crisis and put in strong measures to prevent further escalation down the line. Is this an admission by the president that there is further danger to come or a cavalier attempt to address the issues?
Angela Merkel too has called for more longer term planning in dealing with future events. This is all very encouraging but will need to be backed up. The GBPEUR rate had climbed above 1.20 comfortably last week before the successful Portuguese bond auction, which has seen the rate anchoring in the 1.18 – high 1.19 bracket. I feel this is because the markets know that ‘Europe’ won’t allow it’s own currency to become affected by this crisis and will respond. Germany in particular has continuely been shown to react affirmatively when needs must. Although there is no disguising the anger by the German public at having to bailout the ‘lazy’ weaker euro members who they feel have mismanaged their economies.
Despite a potential increase in the bailout fund and indeed the possibility of a new round of more stringent stress tests, the underlying issues in the eurozone remain. I personally think recently raised funds for Portuguese and Spanish bonds representing ‘investor confidence’ is overstated. The ECB were the main subscriber, and as discussed in previous posts, for me, it is nothing more than a form of Quantitative Easing by the Central Bank. I foresee recent developments opening up yet another new chapter in the chronicle of the European Debt Crisis, but one which like the others merely sets the scene for another, one with no real conclusion in sight…
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