| Rob's 5th guest post on 'Saving The Euro'
Have I missed something?
Why are the markets improving?
Spain just been downgraded.
The increase in powers of the EFSF will very likely go through now that
Slovakia seems to be toeing the party line - took the fall of the
current democratically elected government to do it though, but do the
Eurocrats care - not really, Slovakia only represents about 1% of
Euroland. Doesn't matter providing France and Germany get what they want
out of it.
Large European banks being downgraded again, or put "on watch" for
further downgrading.
Pressure on the banks to bring their capital ratios up even higher to
around 10% to ensure that they can weather the impending debt storm -
the cash amount has been calculated at around Euro 200bn. However,
rather than increase their capital in the currently over priced market,
many banks would rather sell off assets and bring the ratios in to line
that way.
Governments don't like that idea - smaller banks, with higher capital
requirements would very likely lead to less lending and an increase in
the credit problem.
I do have some sympathy with the banks because a couple of years ago
they were all told to increase their holdings of various "liquid"
instruments, and high on the list of acceptable products were European
debt instruments - ooppssssss.
IMF now also puts Japan under scrutiny as having the largest debt ratio
to GDP of all the industrialized nations.
A number of key meetings in the pipeline - G20 and the Euro zone
ministers meeting to come up with some kind of solution to this rapidly
worsening problem, but will we see action?
There must be some very perverse logic at play at the moment.
The news is constantly negative, but what are the markets doing?
You got it - going up again.
Euro/$ trading at 1.38, was 1.33 just a few days ago.
Stock markets strengthening - FTSE 5,450, and most other European
indices showing similar rises.
In the UK the government seems to be on the back foot with internal
party issues clouding the need to get the economy back on track -
construction figures down over 4% bon a year ago, Uk hedge fund managers
under scrutiny over lack of performance and loss of funds under
management.
All looks pretty dire to me......
I will stick with what I have said previously, Europe needs to come up
with a plan and stick to it - if it means chopping off the dead wood so
the tree can survive then so be it, it cannot go on day after day
fighting a rear-guard action against adverse news, downgrades etc. - at
some point it will simply run out of options, or the resources to mount
any kind of viable defence.
As a back stop, you could think about laying in stocks of bottled water,
dried food stuffs etc...............I am.
__________
The author, Rob (not his real name), is a treasury manager at one of
UK's largest charities.
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