“There is no emergency here, there’s a clear path towards stabilisation” proclaimed Luc Freidman, finance minister in Luxembourg. Well, there were decisions made regarding the stabilisation, although the markets felt they fell short of the action required.
To begin with, Spain was given an extension to 2014 to bring austerity measures into check. It has been clear from previous EU meetings that the ‘great push for austerity’ was a massive failure, pushing many Eurozone countries towards bankruptcy. Eventually, the Eurozone agreed that this austerity-focused approach has its downsides and that there must be an equal focus on growth, illustrated by an extension to the Spanish austerity target.
The ESM as a whole sits on tenterhooks, awaiting final German approval. As it stands, the apparent German commitment, if the ESM were to be approved, is in the region of €190bn – a figure that the Germans will not be too comfortable with. This, of course, will be long debated in German houses and the further the ESM is delayed, the more potential damage could be done in the Eurozone. In the meantime, €100bn has been set aside for the ‘Spanish Bailout’ of which €30bn may well be available in late July if required.
Minutes from the recent FED meeting are released tomorrow. With ‘Operation Twist’ being beaten by bond dealers in the US, there is a focus on what the FED can do next. As much as the US would like to undertake more effective stimulus, the debt ratio in the US means that there are only limited options available. The OECD holds the view that growth around the world will remain stagnant and unemployment will increase… there is no doubt the US will have to come up with something special.
Can’t help reflecting on the fact that Europe, the UK and the US are all waiting on Angela Merkel to ‘agree’ to ending the crisis. (JKM)