I can’t help beginning to feel that the Eurozone is sliding away with now and there isn’t a lot more that can be done. There is always the hope that Germany will be the great saviour. With the Way Angela Merkel and her government dismissed various notions from the Eurozone; you would expect that they had a great plan in store. Well, the creditors may have called their bluff. Germany has now been downgraded (albeit slightly) from their perfect rating as their association with the Eurozone begins to weigh on the prospect of their economic outlook. Germany has always tried to maintain a separation between them and the rest of the Eurozone – that separation may be one of the key reasons why the situation is only getting worse.
Spain bravely returned to the bond markets today, after setting a new record of the highest coupon interest paid by a European government. No surprise that bond prices pressed higher again today which has pushed Spain closer to the brink and dragged Italy along with them. There was always a view that Spain and Italy were too big to bailout, this now seems like the only option left. The level of borrowing has become so high that it is unlikely that Spain will be able to pay the interest on capital generated. It is no surprise that we have seen an aggressive sale of the Euro and European Equities.
UK GDP tomorrow… “Sterling in the Sunshine?” (JKM)