Politicians or Bankers could prevent Eurozone’s breakup?
12/06/11

Debt crisis might have pushed Europe’s and China’s economy into a steeper contraction than earlier thought.

European leaders will meet in Brussels on Thursday and Friday to assure the markets that the Eurozone isn't going to fall apart. Yet economists in Europe and the United States agree that the solution to Europe's problems lies largely outside of diplomatic summits.

These economists said that only the European Central Bank can prevent a breakup of the Eurozone. At a minimum, they said, the ECB needs to issue euro bonds, backed by the ECB, or promise to lend a very large amount to troubled European countries.

Merkel and Sarkozy solution to Europe’s crisis

Angela Merkel and French President Nicolas Sarkozy working on the European Union governing rules to end Europe’s debt crisis. This is what was reported but what I believe we are experiencing is Germany’s ambition to get out of Euro and be the controlling economic power for all the European countries. 

Stocks and the euro rose after the two Europe’s biggest economies were aligned on backing penalties for deficit violators and locking limits on debt into euro states’ constitutions. I don’t know if Sarkozy knows better or he just playing the game. The French leader said that they aimed to reach consensus on the changes required by March.

While the announcements were made both Merkel and Sarkozy still need to convince the rest of the euro area to go along with their plans. Just wait and see the fate of Europe, I am not really very optimistic of the outcome.

Central Banks & Dollar Liquidity

December 1, 2011

Coordinated action from central banks worldwide aimed at increasing dollar liquidity in the global financial system. The ECB will regularly conduct US dollar liquidity with a maturity of approximately one week and three months at the new pricing.

The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank all dropped their price on existing dollar liquidity swap arrangements.

Consequently, the dollar fell sharply following the central banks' announcement. The euro surged higher versus the dollar Wednesday morning in New York, after they announced a joint program to provide dollars to banks in an effort to ease strains in the financial markets.

Standard & Poor's cut its ratings on 15 of the world's largest banks late Tuesday – while at the same time raising its rating for two Chinese banks. The banks in Europe and North America have become less stable since 2006 while Asia-Pacific banks have stayed about the same. Rapid credit growth in China is a concern. But higher savings rates in Asia mean that banks have access to larger deposit bases than their counterparts in the developed world. 

Bank of America, Barclays, Citigroup, Goldman Sachs, HSBC, JPMorgan Chase, Morgan Stanley, Royal Bank of Scotland and UBS all had their debt ratings cut by one notch each. S&P could also change its outlook on France's AAA rating.

Eurozone’s finance ministers meantime agreed Tuesday on measures aiming to boost the Euro area's rescue fund. One mechanism will be a "partial protection certificate" for government bond investors, the other measure involves creating "one or more Co-Investment Funds", to attract additional investment. "Both options are designed to enlarge the capacity of the EFSF (European Financial Stability Facility).

The EFSF's current effective lending capacity is €440 billion, some of that €440 billion is already committed in loans. There are widespread concerns that the EFSF is not large enough to rescue those nations should they require a bailout. We will have to look at the IMF, the Dutch finance minister Jan Kees de Jager told reporters after Tuesday's meeting.  Countries in Europe and outside of Europe should be prepared to give more money to the IMF.

Tuesday's meeting also brought an agreement to release €8 billion of bailout funding to Greece. By the way the total Europe’s loans to Greece are:

·       50 Billion Euros to Greek Bonds

·       110 Billion Euros to Banks

·       110 Billion Euros for the 1^st installment

·       130 Billion Euros for the 2^nd installment

Total of 400 Billion Euros.