In the recent WikiLeaks scandal documenting (in part) US assessments of Europe’s political leaders, the German Chancellor Angela Merkel was described as ‘risk aversive and rarely creative.’ Following the meeting between IMF chief and Dominique Strauss-Kahn and EMU Finance Ministers yesterday, several EU politicians might find themselves agreeing with this evaluation.
Yesterday the German Chancellor vetoed not only suggestions by Dominique Strauss-Kahn and the Belgian Finance Minister that the EMU bailout fund should be increased. She also vetoed Italian suggestions that the EMU should create euro zone governments bonds called E-Bonds (these would ease the pressure on individual member states.)
Hence this morning the EMU finds itself in broadly the same situation as yesterday. The ECB can ensure indebted member states remain liquid by providing unlimited loans, but a long term solution remains evasive. In fact following the meeting yesterday, the cost of insuring Portuguese and Spanish government debt rose, indicating that market confidence in the nations fell.
In addition the EU-IMF face another hurdle this morning as the Irish Government struggles to pass the austerity budget needed to improve the nation’s finances. The budget is expected to pass: last night the Fionna Fail coalition secured the support of two independent MPs bringing the pro-budget total to 82 versus 80. Nonetheless until the budget passes the markets might be nervous.
It was a quiet day for the UK and US yesterday. This changes today as the latest British industrial production figures are released. These are expected to show modest growth and could total a 4% year-on-year increase in industrial production (though still 10% lower than pre-2008 levels.) This would be positive for sterling.
In the US meanwhile the newest consumer credit figures are released. These document the amount of credit US consumers are taking, and thereby indicate how comfortable consumers feel in their economic position. High borrowing typically means consumers feel comfortable, meaning the release could increase optimism in the dollar.
By Peter Lavelle with foreign currency exchange dealers Pure FX.
