You can think of it as a continuation of my last post, entitled "euro payment for correction," which I proclaimed that "investors got ahead of themselves when they pushed the euro down 20 percent in the first half of 2010, but now they are in danger of making the same mistake and pushing the euro too far in the opposite direction." since the euro has actually fallen 4%. In this case, however, I am reluctant to toot my own horn, because there are other forces at work.
Namely officially sovereign debt crisis it has spread outside of Greece, and "Domino is definitely back on the table. The main concern is Ireland, whose banking sector is in serious financial distress: Irish banking losses estimated at up to 80 billion euros ($ 109 billion), depending on the projection is used, or 50 per cent of the economy. As long as housing prices continue to decline, these losses cannot be restricted. "at this stage, it seems unlikely that banks can stay afloat without assistance (optional).The only problem is that the Government had already attacked his charitable foundation, with additional support will leave a gaping hole in budget equivalent to 32% OF GDP. enables banks, meanwhile, will lead to economic losses in the amount of 50 per cent of GDP.
Portugal and Spain (rounding out the so-called pig) is in trouble, with a budget deficit of about 9% OF GDP.Since both countries are struggling economically, it is possible that tough measures and reduction of the budget can backfire and degrade their respective financial situations as their Irish colleagues Portuguese banks remain heavily dependent on access to cheap credit, THE ECB to function. Spanish banks, meanwhile, suffered from bad loans that are "5.6% of Spanish bank loans — the highest level since 1996."
Now their Governments insist that they can obtain without the cooperation of the European Commission to be fair, they succeeded in this release of the new debt refinancing of the existing debt without major difficulties. Also Ireland and Portugal have modest reserve funds that could overcome them for close to a year, if needed. In the medium term, however, is less rosy.
If bonds are any indication, these countries could be in serious trouble.Bond investors are concerned not EU crisis, which is seen as inevitable, at least for Ireland in the end, a European financial stability fund which was established in may, more than $ 500 billion left in it.More investors are worried that they will be invited to participate in the crisis.
Germany, for example, strengthening its position in relation to financially strained and Angela Merkel insisted that indebted countries of the euro area ", trying to return to restructure their debt in the process of insolvency" managed "and that their lenders will require a major haircut.""Until now, the European Union will support the sovereign hinted it defaulted to alleviate investor bond market.
The situation was changing, both German and French politicians insist that they are more beholden to their constituents/taxpayers than duty EU brothers. considering that Germany is financially sound, it has quite a bit had nothing to lose (from the collapse of the euro) play hardball. Indeed it actually can make use of scaring away investors, as the weaker euro will strengthen its export sector.
Moving forward, it seems safe to say that correction of the euro will continue as investors continue to revise their susceptibility to sovereign credit risk according to the most recent CFTC commitment of traders "investors last week slashed their rates in favour of the introduction of the euro by 40% to a level not seen since the beginning of October.Of course, given that the dollar has its own set of problems is not clear whether the EUR/USD will experience significant fluctuations. relation to other currencies, the euro would decline: "those who want to short the euro should be doing this on crosses."
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