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GREEK ELECTION ON SUNDAY LOOMS LARGE, WHILST RAJOY BATTLES ECB FOR LOANS;
Contributor / 2012-06-19 15:59:32
The Greek election over the weekend looms large over the currency markets. There is a genuine feeling of unease over what will happen to Greece over the coming months. But as ever with markets, uncertainty over the outcome is the main driver rather than the prospect of a Greek exit from the Euro-zone.
The water was muddied further by an article in the Financial Times newspaper by Alexis Tsipras, leader of the Syriza Party, suggesting he would keep Greece in the Euro-zone if elected. A month ago the dominant thought was that if an anti-austerity party formed a government, Greece would then start along the road to leaving the Euro. However, it is possible that Greece could remain inside the Euro-zone even if they were to default. Whatever happens on Sunday, next week will likely be an interesting one.
Across the major pairs the Euro has gaining ground in Asian trading overnight as details leaked (what a surprise....) that European leaders are prepared to discuss a European banking union at the next EU summit. It strikes us as another round of chicken between EU politicians and the market. Let’s hope they can actually deliver what is needed this time, rather than just proposing it and then thinking it wouldn’t matter if they failed to deliver.
Spain attacked Germany for what it termed fostering the financial crisis, saying the biggest European economy has benefited from the single currency as its banks profiteered by lending to the fast-growing South. “It’s true that some countries including Spain lived beyond our means but that’s because banks from the core decided to make lots of money investing here,” Spanish Foreign Minister Jose Manuel Garcia-Margallo told Onda Cero radio. If Germany “throws one country to the wolves that will affect everyone, so they should take a more long-term view.”
Italy’s bond yields soared at an auction today and German Chancellor Angela Merkel rejected “seemingly easy” solutions to the financial turmoil, pushing back against calls by France, Spain and Italy. Garcia-Margallo said Germany’s export-led economic boom was powered by the monetary union that depresses their currency. He commented a day after Spanish Prime Minister Mariano Rajoy said he would “battle” the European Central Bank for cheap loans to avoid a sovereign bailout. Rajoy yesterday called for the ECB to buy Spanish government debt investors are dumping to ease the government’s interest costs in a letter to European Commission President Jose Manuel Barroso. “That is the battle we have to wage in Europe,” Rajoy told Parliament in Madrid. “I am waging it.”
The EU and the ECB have already lent or pledged the equivalent of about 40 percent of Spain’s annual economic output to the state and country’s financial institutions. Spanish lenders took a record 287.8 billion Euros from the central bank in May, which many channelled into government debt to support the sovereign. The government agreed June 9 to borrow another 100 billion Euros from the EU to recapitalize the banks.
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