1 year, 11 months ago
What is your opinion of the Eurozone - European Central Bank (ECB) debt crisis management? $100 bil in debt maturing 2012, gov debt buy back
How is the Eurozone debt crisis reducing interest rates in US Treasuries yields? Is a second real estate boom starting to emerge as home interest yields remain excessive low?
How much Eurozone Debt will need to be managed by the ECB?
What is the long-term economic prospective in the Eurozone?
What does the producer price index and manufacturing orders index look like for the countries in the Eurozone?
Will there be a period of peace and stability followed by a sudden hyperinflation collapse?
How much Eurozone Debt will need to be managed by the ECB?
What is the long-term economic prospective in the Eurozone?
What does the producer price index and manufacturing orders index look like for the countries in the Eurozone?
Will there be a period of peace and stability followed by a sudden hyperinflation collapse?
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M$1 Answer
The recent events that happened in the Eurozone, starting with the unraveling of the Greece's debt crisis, only exposes the vulnerabilities of the Euro Currency, specifically the internal factors that can hinder its stability. "By instructing the ECB to buy sovereign bonds, the EU is moving from monetary to fiscal union with, on one hand, immediate impact on monetary policy and, on the other hand, mid to long-term implications for sovereign debt valuation in the region."
The Euro zone debt crisis has espoused an environment of fiscal union, as mentioned above which in effect, as the dust settles will lead to the re-assessment on Europe's sovereign debts, not to exclude the "downward pressure on German bond prices, potentially sending yields on Bonds closer to those of US Treasuries."
In terms of the Eurozone debt that should be managed by ECB, the amount should not exceed 50% of GDP on all EU member states.
http://www.forexblog.org/wp-content/uploads/2009/06/eu-government-debt.jpg
In terms of long-term economic prospects in the Euro zone," the economy “will be marked by slow and non- linear growth,” according to ECB' Mersch.
"In the whole of the European Union, producer prices gained 1% in April compared to March, taking the annual growth to 3.7% in April. In March, the PPI moved up 0.8% month-on-month and 1.7% annually. Still, deflation is the greater concern than a rise in inflation."
As far as inflation is concerned the outlook "in the medium and long term remain clearly anchored at a level in line with price stability.”"
http://www.gold-eagle.com/editorials_08/images/dorsch021810h.gif
The Euro zone debt crisis has espoused an environment of fiscal union, as mentioned above which in effect, as the dust settles will lead to the re-assessment on Europe's sovereign debts, not to exclude the "downward pressure on German bond prices, potentially sending yields on Bonds closer to those of US Treasuries."
In terms of the Eurozone debt that should be managed by ECB, the amount should not exceed 50% of GDP on all EU member states.
In terms of long-term economic prospects in the Euro zone," the economy “will be marked by slow and non- linear growth,” according to ECB' Mersch.
"In the whole of the European Union, producer prices gained 1% in April compared to March, taking the annual growth to 3.7% in April. In March, the PPI moved up 0.8% month-on-month and 1.7% annually. Still, deflation is the greater concern than a rise in inflation."
As far as inflation is concerned the outlook "in the medium and long term remain clearly anchored at a level in line with price stability.”"
images:
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M$
$952 billion in aid may not be enough!
German lawmakers approved participation in the European Central Bank $925 billion safety net, after, the lower house voted with a majority of 319 votes in favor, 73 opposed, and 195 abstaining. Germany contributed $29.6 billion, over three years, to a rescue package for Greece. Germany banned short selling to prevent sell off of the euro. German public opinion decisively does not support a bailout. Germany wants to stabilize Greece to stabilize the euro as a whole and help the German people. Germany fiscal policy in the past has been opposed to a bailout.
http://www.time.com/time/world/article/0,8599,1991154,00.html
France will contribute 16.8 billion euros over three years, at a 5 percent interest rate.
Finland will pay 1.6 billion euros.
Greece announced it would cut $40 billion through 2012 in public service and pension pay cuts and higher taxes. Greece banks will gain access to $13.3 billion in funds through a “stabilization fund”
The ECB will suspend the minimum credit rating requirement for all existing and new debt instruments issued or guaranteed by the Greek government.
http://blog.taragana.com/business/2010/05/03/germany-to-shore-up-greece-euro-by-providing-296b-over-3-years-others-following-2-56817/
Will ECB debt purchases drive inflation?
The European Central Banks has responded with a $925 billion fund to purchase sovereign government and corporate bond debt from Greece, Portugal, and Spain. The debt purchase is to stave off the sovereign debt crisis. The 22 member ECB Governing council approved the debt purchases. The ECB strategy will hurt German bunds (10 yr fell to 2.93%) while lifting the bonds of Portugal (exposure=$240 billion), Greece (exposure=$193 billion), and Spain ($832 billion). (http://www.bloomberg.com/apps/news?sid=a_PRuPJFdhD0&pid=20601087)
"The ECB and the 16 national central banks haven't released what type of bonds they are buying. Traders say the central banks are buying government bonds issued by Greece, Portugal and Ireland, and to a lesser extent bonds from Spain and Italy. "
"If the ECB continues to buy government bonds, at some point markets will start betting that full sterilization will be difficult to implement and inflation expectations will rise, putting stress on long-term bond yields," said Thorsten Weinelt, the chief strategist at UniCredit.
(http://www.foxbusiness.com/story/markets/industries/finance/rd-update-ecb-absorb-eur-billion-liquidity-bond-buys/)
Hungary has $26 billion of debt coming due in 2010
1. In Jun 2010, the euro dropped to $1.18
2. The price of credit default swaps on sovereign bonds surged on speculation of problems in Hungary (371 points). CDS rose on France, Austria, Belgium and Germany. (http://www.bloomberg.com/apps/news?pid=20601087&sid=a_7KXkg.hkYU&pos=3)
3. Hungary’s bonds price climbed and yields dropped. The yield on Hungary’s three-year forint bond fell to 6.888 percent in Budapest. The Hungary market bounced back and the market calmed. (http://www.businessweek.com/news/2010-06-07/hungary-bonds-forint-gain-on-deficit-goal-pledge-stocks-fall.html)
4. CDS on Spanish government debt was 278 points, Ireland was 292 points, Italy was 264 points, and Greece was 783 points.
5. Hungary’s forint currency stands at 269.89 per Euro. (http://www.bloomberg.com/apps/news?sid=aF8ElKxf2HgA&pid=20601087)
6. US 10-year note have fallen from 3.30% (http://www.marketwatch.com/story/treasurys-rally-as-us-report-disappoints-2010-06-04)
7. Hungary’s debt could balloon beyond the 3.8% of GDP limit (http://advisorperspectives.com/commentaries/rge_060910.php)
8. Chinese exporters made a big push in 2009 to bill in euros are increasingly turning their backs on European currency and demanding dollars. China said Europe will remain a key investment market. (http://advisoranalyst.com/glablog/2010/06/04/hungary-meltdown-euro-contagion-spreading/)
9. In 2008, the IMF provided a $24 billion loan to Hungary. Hungary has $26 billion of debt coming due in 2010. (http://www.businessweek.com/news/2010-06-07/hungary-bonds-forint-gain-on-deficit-goal-pledge-stocks-fall.html)
10. OTP Bank is Hungary’s largest commercial banks.