European leaders have agreed to provide a huge rescue package of €720 BILLION in an effort to tackle the debt crisis that has engulfed European countries such as Portugal, Ireland, Italy, Greece & Spain (commonly referred to as 'PIIGS').
The bailout basically consists of the following:
* A €60 billion bailout fund.
* Another €440 billion in the form of loans.
* Another €220 billion from the IMF.
While this package would calm the global financial markets, I doubt it would help the economy of the weaker PIIGS nations, such as Greece, to recover. Greece would improve its chances of recovery by leaving the EU and restructuring its mountain of debts. A hard currency like the Euro is a dead weight for a lightweight like Greece. And, without a significant haircut of its outstanding debts, the debt servicing would be too burdensome for Greece.
Based on the positive effect of this package, I believe the global financial markets would stage a quick rebound this week. Would the recovery be sufficient to rectify the damage done to an already overbought & overextended market? We will have to wait & see.
8 comments:
Hi Alex
Do you think this Euro crisis can be solved if Eur/Usd stops falling and begins an uptrend?
Dear Alex,
Generally, efforts to intervene on a currency’s behalf do not usually end well, and only really serve as a means to slow depreciation. Despite the latest efforts to offer some form of reassurance to the markets, there is still a high degree of uncertainty and fear surrounding the Eurozone debt crisis. It has not helped that Germany does not want to use their taxes for the bailout, while the people of Greece do not want to see higher taxes and a reduction in wages. As such, we would recommend that traders take the latest Euro bounce with a grain of salt and look for opportunities to sell back into what has been a very intense downtrend.
Thanks for your feedback/comments
Hi Alex,
What is ur comment on this http://online.wsj.com/article/SB10001424052748704307804575234553125502696.html?mod=WSJASIA_hpp_MIDDLETopStories
Dear Alex,
The Euro/Usd HAD A MILD reversal from its low to 1.3080 last night , but then lost steam and heading south again to 1.2780 this morning.
The Trader/Investor confidence has yet to be restored. The questions asked will be :- What would it be if such a massive 900 billions failed to materialize, Or any one of the smaller Euro nations start exiting the Union pact due to the severe resulting Economic Pains??
So we will wait and see its interesting development and watch the Market carefully
Dear Alex,
The INITIAL optimism ON THE 900B USD package has faded, as shown clearly on the FTSE and S&P500 Futures ., with Investors and Traders using any rallies in the Euro as immediate opportunities to sell back into a very strong downtrend, concerned that there is still uncertainty and doubtful over the Eurozone’s ability to solve its massive debt crisis.
So be alert and the Euro market is extremely weak and vulnerable., so the Economic disease shall spread to the entire World markets.(all including Forex, Equity,commodity., Energy, Futures, ..)
THANKS FOR YOUR COMMENNTS
Hi John,
I think the Greek crisis had gone past the tipping point last week, with violent street protest & sharp rise in interest rates for Greece bonds. The prospect of contagion appeared very real, as market reacted accordingly by upping the borrowing rates for other financially distressed PIIGS nations (such as Portugal & Spain). Global equity & commodity markets swooned.
Nothing concentrate the mind better than the prospect of doom. Sure enough, a huge rescue package of €720 billion was announced by EU & IMF. It should save the financial markets, but can it save Greece? Many would think that they are merely kicking the can further down the road. Let someone deal with it...
Hi cheer,
I can't access the article.
Hi kyong,
I agree with your observations & comments. The market will go through a volatile period for the next few weeks. Greece could do to sovereign bonds what Lehman Bro did to sub-prime loans.
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