(EU) Risk appetite gains momentum heading into Europe after first day of EU Summit presents its roadmap:
(EU) Van Rompuy indicated that the EU leaders agreed on jobs and growth agenda valued at €120-130B, includes ‘project bonds’. He also said that ESM Spain banks loan will not have senior credit status.
(EU) EU’s Almunia: ESM may be able to inject funds into banks by Jan 1, 2013. EU Summit agreement is a win for both Spain and Italy.
(GE) German Chancellor Merkel:
(EU) Flexible use of EFSF/ESM bailout facilities to stabilize markets means that both primary and secondary bond market intervention is possible, as reported by the Finanial Press. Choice of instrument to be made when country applies for Euro Zone support.
How to interpret these headlines?
If you have been watching the market today, you must have seen the optimism throughout Forex and broader markets, supporting the ‘roadmap’ to a closer fiscal union in Europe. The flexible use of EFSF/ESM will address the foundation of the sovereign debt crisis and directly intervene with speculative moves, and THAT will curb market volatility. In a nutshell, the EU Summit got it right this time, tackling the primary issue head-on, promoting stability in the market while reducing borrowing costs for Italy and Spain, thus bringing hope back to the region.
I believe the harsh conditions placed on the Greek bailouts scared the market off as traders were counting on Greece to fail. However, with Spain’s creative ‘banking aid’ which bypasses any conditions on its sovereign policies, ultimately opens the door for EU to approach bailout differently; and if the banking sectors in a troubled country is stablized, the risk of contagion fear spreading would be low, thus solving the crisis of contagion without really solving anything.
All in all, I believe the market sees compromises in Germany, as Merkel took a step back and agreed to the EFSF/ESM proposal with a “unanimous approval” condition, and that is a major step forward. I believe if the momentum were to continue, EURUSD could be heading back above the 1.3000. Like I have said before, problems are now solvable in Europe and EUR is definitely better now than before the Greek election.
EU Summit Highlights
June 29, 2012 by 1 Comment