Currencies  |  July 31, 2012 16:47:03

What options remain Europe?


ECB president Mario Draghi last week, his statements that he would do everything to save the euro, with investors again awakened great hopes. This is how it plans to do but, as it already is in the habit of European leaders, said.

After Thursday's monetary meeting of the European Central Bank will perhaps wiser. First, at 13:45 Board shall notify the bank interest rate. Later at 14:30, Mr. Draghi will perform at a press conference. After these events will possibly his plans to rescue the euro clearer.

I believe that most investors in his encouraging words Thursday heard what she wanted to hear.Based on the strengthening of the euro against the dollar and the decline of Spanish bond yields, probably expect that the ECB will buy bonds again southern countries.

It, but not at the moment is not as clear as some board members are major opponents of such a procedure. One of them is the German Bundesbank president Jens Weidmann. The purchase of bonds in addition to the southern countries of Europe by the ECB, also rejects the possibility of a banking license eurozone bailout fund (ESM). The stabilization mechanism if the banking license, so the capacity would be virtually unlimited, because he could borrow from the ECB, like other banks in current eurozóně.ESM could then act as a hidden tool for financing government, which is prohibited.

Draghi Weidmann and they plan to thrash out their different opinions, on Thursday before the meeting of the ECB.

The unambiguous determination procedure of the European Central Bank led to the rescue of the euro area is still a cold turkey. The first is to determine the exact amount of money you might need to Spain. The second is to await the 12th September at the German court decision on the legality of the permanent fund ESM.

What chance is thus the European Central Bank?

The ECB has cut interest rates to 0.75%, bought the troubled country bonds worth 211.5 billion and compromising the requirements of the collateral accepted. In addition, through LTROs (Long Term Refinancing Operations) were provided by European banks 1.2 trillion euros in cheap loans.This strategy yielded the expected fruits, since most banks parked the money back to the ECB and were used to start the real economies, which were originally intended.

The ECB could thus continue to reduce interest rates and easing collateral rules. These operations but does not bring the desired results.

One other possibility is that the ECB would exert pressure on the depreciation of the euro. That since 2010, when the debt crisis began, weakened from 1.50 to nearly 1.20 against the dollar. A weaker euro could help especially the textile and shoemaking industry southern European countries. This could however be in conflict with the interests of the U.S. and China.

Purchase of bonds troubled eurozone countries would probably produce the most immediate positive reaction of the market. Bond yields fell by southern European countries and revive the interbank confidence. How much would the bond market but the question is alive, because hedge funds have counted well as on the country really are and can not be quickly and easily fooled.

On the other hand, buying bonds, we come to the brink of the abyss countries through debt financing for the ECB. Furthermore, by creating inflationary pressures. These, however, can be dimmed using sterilization operations.

Negatives resulting from the purchase of troubled bonds of European countries could be partially solved by purchasing corporate and bank bonds.In this case, but remained unsolved fundamental problem and how to force countries to put their budgets in order, after the situation in the financial markets calm down.

All representatives of the ECB still remember very well the situation where the former Italian Prime Minister Berlusconi promised fiscal reform and budget cuts. After the ECB purchased Italian bonds, but forgot it.

(Source: Reuters)

Michala Moravcová

Michala Moravcová

Vystudovala Vysokou školu ekonomickou v Praze obor Finance. Působila ve společnosti WOOD & Company v Praze, kde pracovala jako trader na akciových trzích. Specializovala se zejména na trhy střední a východní Evropy. Momentálně pracuje jako analytička finančních trhů ve společnosti Bossa. Součástí její práce je analýza domácí i zahraniční makroekonomické situace a její vliv na finanční trhy, zejména na forex. Věnuje se ekonomickému vzdělávaní veřejnosti a publikaci ekonomických článků.

Logo BossaSpolečnost BOSSA je stabilním obchodníkem s cennými papíry, který se v evropském hospodářském prostoru pohybuje již 17 let. Za dobu své existence se dočkala mnohých ocenění. Např. časopisem Forbes byla několikrát označena za brokera roku a to zejména na svém domácím - polském trhu. Od roku 2012 vstupuje také na trh český, kde může své klienty oslovit obchodní platformou Metatrader 4 pro PC i mobilní zařízení, kamennou pobočkou v centru Prahy, technickou podporou i zpravodajstvím v českém jazyce, stejně tak strukturovaným systémem bezplatného vzdělávání, které zajišťuje tým zkušených odborníků i mnohaletých traderů.

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