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Monday, 12 December 2011

Euro Weakens as EU Summit Fails to Inspire Markets

David Cameron, Up EURS, Current Affairs, Merkel, Sarkozy

Last week’s EU summit failed to inspire markets and as a result the Euro has weakened against the Pound and Dollar significantly today. The Sterling Euro rate has breached the significant 1.180 mark – a 9 month high – and is pushing past 1.182. The Euro has also fallen by over 1.25% to 1.321 against the Dollar as a result of the talks in Brussels. The Financial Times gave an undecorated summary of the summit’s failed efforts:

1. “The decision to set up a fiscal union outside the European treaties will do nothing whatsoever to resolve the Eurozone crisis.”

2. “If you want a fiscal union, nothing less than a full treaty change will do.”

3. “A fiscal union set up outside the European treaty would face severe legal and practical limitations.”

4. “We now have no treaty change, no Eurozone bond and no increase either in the rescue fund or in ECB support.”

5. “The EU fell short on every element of a comprehensive deal.”

It seems that UK Prime Minister David Cameron’s decision to veto the Lisbon Treaty changes, in order to protect London’s financial sector, has played a big part in negative market sentiment towards the Euro. The decision has been met with criticism from coalition deputy Nick Clegg who was “bitterly disappointed,” with the summit’s outcome and described it as “bad for Britain.” French President Nicolas Sarkozy was also critical of the decision implying that Cameron had deliberately broken down the talks regardless of extensive efforts from German Chancellor Angela Merkel and himself to “ensure Britain was on board with this accord.”

But considering the desperately negative outlook; full EU support would not suffice to impress investors; more decisive action was needed and not fulfilled.

Standard & Poor’s announcement last week that it had put the large majority of the Eurozone on credit watch could be followed-up by an unusually rapid call to action. S&P usually take around 3 months to impose credit downgrades after dishing out warnings, but they have stated: “There probably is yet another shock required before everybody in the Eurozone reads from the same page.”

S&P have been joined by Moody’s Investors Service; the news that both credit agencies are recalculating Eurozone ratings bodes very badly for the Euro. Subsequently the US Dollar and Japanese Yen have strengthened from risk-aversion capital flows; the Pound has benefitted significantly from its ‘isolated’ position outside of the Eurozone debt mess; and the commodity currencies (New Zealand Dollar, Australian Dollar, and South African Rand) have taken damaging blows akin to those of the Euro, at around 1%.

By Josh Ferry Woodard

Cutting Edge Current Affairs Courtesy of:
Josh Ferry Woodard

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