Quantcast
Channel: Easy Forex News » Greece
Viewing all articles
Browse latest Browse all 10

Europe Week Summary

0
0

This year began with worries about Europe’s banks — and it is ending on a similar note.

On Wednesday, the European Central Bank extended more than 489 billion euros ($636 billion) in low-interest loans to euro-zone banks to help ease a funding squeeze. That was way more than the 250 billion euros to 350 billion euros that had been expected. With banks scaling back on shorter-term facilities, the net impact will inflate the ECB’s balance sheet by about 200 billion euros. More than 500 banks participated in the three-year lending facility, an indication of the breadth and depth of the crisis, as if such reminders were needed.

Markets were surprised by the number of banks lining up to borrow. But investors focused on the injection of liquidity into the banking system, which was good news, and the Stoxx Europe 600 ended Friday at 241.86 points, up 3.2% on the week. With only a holiday-studded week of trading left in 2011, the index is down about 13% since Jan. 1, erasing 2010′s gains as policy makers have fumbled their response to the crisis.

Banks have been hit hardest of all, with the sector plunging 30% since the year began on worries about their holdings of risky sovereign debt. Those fears were crystallized when investors were forced to take a haircut of 50% on Greek government bonds under the terms of a bailout that failed to trigger credit-default-swap insurance. Greek banks face nationalization, but there have been other notable casualties, too. The Franco-Belgian bank Dexia, (ticker: DEXB.Belgium), which depended on short-term interbank lending, collapsed.

The market’s difficulties in 2011 were amplified by a slowdown in economic growth globally that prevented struggling economies on the periphery of the euro zone from exporting their way out of trouble. Ireland and Portugal also have received bailouts.

Greece’s problems are far from over, even though its rescue package has been revised. The country’s books don’t balance, and austerity is proving to be a tough sell to the Greek people. Prime Minister George Papandreou was replaced by a technocrat, Lucas Papademos, who is charged with pushing through unpopular reforms to try to meet conditions for more aid. Failure could see Greece exit the euro in 2012.

Italy, which has to refinance hundreds of billions of euros of debt in 2012, was tested by the markets. The interest rate it had to pay on new borrowings soared to more than 7%, a level considered unsustainable over the longer term. Prime Minister Silvio Berlusconi, whose tenure was plagued by personal scandals, lost the confidence of lawmakers and was succeeded by Mario Monti, a respected economist. Monti faces challenges similar to those confronting Papademos, but his initial moves have been welcomed. Italy’s borrowing costs have fallen. That’s a relief for the entire euro zone because Italy’s economy is too big to be rescued.

No one is suggesting that last week’s lending by the European Central Bank is a panacea for what ails the common-currency area. The shadow of rating downgrades hangs over even the euro zone’s triple-A countries, including Germany and France, as the new year draws near. Unlimited buying of government bonds the ECB – could pacify markets into 2012.

 

EasyForexNews Research Team


Viewing all articles
Browse latest Browse all 10

Latest Images

Trending Articles





Latest Images