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Wednesday, 14 December 2011

Sterling Surges as Markets Punish Merkozy

euro, decline, cartoon, merkel, sarkozy



The Pound has continued its surge against the Euro today and is currently trading above 9-month highs at 1.191. Markets are punishing the Eurozone for its lacklustre EU Summit measures, the talks in Brussels were billed as crucial for European resuscitation but they failed to inspire investors due to their lack of conviction. The affirmative actions that markets yearned for (Euro-wide bonds and increased ECB intervention) were denied and investors seemed perturbed by peripheral treaty change proposals (automatic penalty sanctions, sooner European Stability Mechanisms and €200 billion in bilateral loans).

German Chancellor Angela Merkel poured some salt into the Euro’s, already severe, wounds yesterday by announcing that she would (do a Cameron) and veto any attempts to bolster the European Financial Stability Facility’s €500 billion lending limit. The sense in her statement is clear to be seen (Italy alone would need over double that of the EFSF’s current limit to clear its current debts) however in this economic climate that is characterised by anxiety and dread; investors will not respond positively to such psychological blows.

The Summit’s tame outcome is apparent in the high yield (6.71%) that Italy’s 5-year bonds were sold at this morning in London.

The road ahead is fraught with hazard for the Euro, and the EU Summit did little to offset these potential pitfalls; deep crisis looms large for the Eurozone. Standard & Poor, Moody’s, and Fitch Ratings have all expressed concerns following the treaty talks; if leading Euro-nations such as France or even economic powerhouse Germany lose their AAA credit rating then borrowing costs – and subsequently Eurozone debt – would soar, and the EFSF rescue fund would diminish.

Italy has €150 billion in debt due between February and April alone and may well need outside aid to support it through the New Year unless something changes significantly. Italy, Spain and France must raise a cumulative €17 billion every week in 2012 and markets have deemed the treaty measures an inadequate stepping stone towards clearing the debt.

However it’s not all doom and gloom for the Eurozone, Greece, the founders of modern society, democracy... and the Eurozone debt crisis are being rewarded for their trouble by getting more debt written off – oh but that is doom and gloom for the Euro-banks that hold Greece’s debt; the European banks that hold up the Eurozone, my bad!

Cutting Edge Current Affairs Courtesy of:
Josh Ferry Woodard 


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