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Wednesday, 27 July 07:29 (GMT -05:00)



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European Budgetary Union: Illusion or Way Out Of Debt Crisis?

European Budgetary Union: Illusion or Way Out Of Debt Crisis?

 

 

EU leaders held another summit in Brussels on Jan 30th. It was attended by mixed sentiments and forecasts. Luckily, the EU and the eurozone managed to avoid disintegration. However, they didn’t find the cure for all the economic problems in the union either.
 
Germany and France, 2 economic locomotives of the debt-ridden eurozone, didn’t quit the currency union despite expectations but made another (the last) warning to the other eurozone members, thus reminding them to maintain budgetary discipline and forcing them to sing a “fiscal plan”.

 

 

 

 

 

 

December’s EU Summit
 
There was another EU summit held in December. The goals were the same – to save the eurozone and the EU from the escalating debt crisis. As a result, the participants approved several budgetary and tax reforms within the union.
 
The essence of these reforms: The EU’s new budget and tax policies should correspond to the French –German plan, according to which:
 
·         All the eurozone members should accept and never violate the budget deficit limit.  
·         The Euro Commission gets the right to introduce tough sanctions against violators.
·         All the 17 eurozone countries should have common corporate and other tax rates.
·         In future, no eurozone country can accept private financial support (as it was done by Greece).
 
The “split’ of the EU: The plan offered by Germany and France was supported by all the 17 eurozone members. However, David Cameron, the UK’s Prime Minister, blocked the idea of spreading the plan over the entire EU. Therefore, a demarcation line between the eurozone and non-eurozone members of the EU started to emerge. The latter are dissatisfied that the former want to make decisions for them.
 
 
January’s emergency summit
The EU entered 2012 without a new financial charter even though during December’s summit it was agreed to prepare a new version of the Lisbon Treaty (including the budgetary changes) by March 2012. So far, those changes have been accepted only by eurozone members.
During the January summit Angela Merkel offered all the 27 EU members to sign a financial pact, which suggested:
·         Fines for violating the budget deficit limit.
·         These fines will contribute to the European Stability Mechanism (ESM).
·         The only exception is a force-majeure like natural disasters or sharp economic decline.
As the result, 17 eurozone and 8 non-eurozone members signed the budgetary pact offered by Germany, even though it was sufficient to get 12 votes. Therefore, 25 of 27 EU countries approved the introduction of new fiscal and budgetary rules. Only the UK and Czech Republic denied them. Poland, Hungary and Sweden hesitated for some time.
 
Results
 
A couple of days ago Angela Merkel expressed confidence that the EU would manage to overcome the crisis and to restore the confidence of financial markets.
On Jan 31st, after the EU summit, European stock indexes rallied after a 2-days decline. Stoxx Europe 600 increased by 0,5% up to 253,68. Dow Jones Euro Stoxx 50 gained 0,53%, thus reaching 2417,30. The UK’s FTSE 100 rallied 0,68% up to 5709,75. France’s CAC 40 increased by 28,59 (+0,88%), thus reaching 3294,23. Germany’s DAX gained 26,18 (+0,41%) thus hitting 6470,63. However, later on, the markets got disappointed by the fact that the EU authorities decided to postpone the Greek issue till March. The rally stopped.
 
Investors realize that the new fiscal pact aimed at strengthening the budgetary disciple within the EU is good, but the results will be visible only in long-term perspective. The legal mechanism of fining is not specified yet. There is no guarantee that weak eurozone economies will maintain the budgetary discipline. Now there is one more union within the EU: the fiscal union of 25 countries, apart from the EU itself (27 members) and the eurozone (17 EU members). This complicated structure may scare away numerous foreign investors.
 
What can inspire investors?
 
The very fact that Europe supported Germany’s initiative hints that it unofficially accepted its leadership in the union. The German authorities definitely like this fact and will probably allocate some funds to support Greece, Portugal and Ireland because now they probably assume that European borrowers will be more disciplined.
The supporters of the new fiscal union are sure that the Czech Republic will soon join it while David Cameron’s successor will probably be more complaisant.    
 
 
EURUSD: Forecast
 
According to the Department of Masterforex-V Trading System , EURUSD is flattish in mid-term perspective. A break above the local high 1.3217 will trigger sub-wave C(C ).  The closest levels of resistance are 1.3233, 1.3242, 1.3375, 1.3434. A break below 1.3031 will probably complete the rally, this initiating a downswing – wave A/B.
 

 

 

 

 
Market Leader and Masterforex-V Academy would appreciate if you could participate in a survey. Please, visit the Academy’s forum for traders and investors and answer the following question:
Will the new budgetary agreement be efficient enough to help the eurozone come out the debt crisis?

 

 

 

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British Banks Get Their Ratings Cut After Brexit Referendum

Shortly after the results of the Brexit referendum were announced, Standard & Poor's Global Ratings made several steps aimed at cutting the ratings of multiple British banks. This was done in order to show the world that the economic risks in the United Kingdom are growing and the entire British banking system is now in jeopardy.
 
Publication date: 14 July 04:28 AM

BOE Predicts Volatility In British Markets

According to Mark Carney, Governor of the Bank of England, the Brexit-related risks have already started implementing themselves. That’s why he predicts increased volatility in the local economy and financial markets.

 

 
To be more specific, the BOE Governor assumes that the risks associated with the UK’s decision to quit the European Union are already there and affecting the entire economic and financial system of Great Britain. This is what is said in the recent report on the UK’s financial system, which is released twice a year by the Bank of England. The thing is that the Brexit is eventually going to trigger a long-term period of economic and financial uncertainty in the United Kingdom, which will make the UK adapt to a new reality.
Publication date: 13 July 04:14 AM

Brexit Delays Fed's Interest Rate Hike Until 2018

As expected by many international experts, the Brexit referendum results have had a serious impact on many of those international processes. According to Bloomberg, this is going to be the key reason for the Federal Reserve to delay another interest rate cut until 2018.

 

 
Publication date: 12 July 05:43 AM

Scotland Will Exit UK Before Brexit, J.P. Morgan Experts Say

According to the analysts of J.P. Morgan, one of the biggest banks in the USA and the entire world, Scotland will hold a referendum to quit the United Kingdom and get complete independence. By 2019, the local authorities will have introduced their own national currencies to replace the British Pound. This is what The Daily Telegraph reports with reference to Michael Barr, who is the the leading expert at J.P, Morgan.

 

 
Publication date: 12 July 05:01 AM

Soros Predicts EU Disintegration After Brexit

According to George Soros, the world-famous billionaire and investor, the Brexit, which stands form the Great Britain’s exit from the European Union is nothing but the worst nightmare coming true. He says that after the United Kingdom finally leaves the European Union, the disintegration of the E.U. is going to be just a matter of time.
 
Publication date: 09 July 08:30 AM

Experts on How U.K. Is Going to Leave the E.U.

As you probably know, during the recent referendum held in the United Kingdom on June 23rd, 2016, the people of Great Britain decided to quit the European Union. This is a truly historical event capable of changing the economic and financial situation in Europe. At this point, the British government is busy solving a number of urgent issues, including the EU membership.

 

 
Publication date: 06 July 04:36 AM

Fitch Cuts U.K.'s Long-Term Credit Ratings

As you probably know, on June 23, 2016, the United Kingdom held the so-called Brexit referendum to decide whether the folks want to stay in the European Union. As the result, they decided to quit the EU. So, the Brexit scenario is underway and is already affecting Great Britain’s economic prospects.
 
Publication date: 06 July 04:05 AM

London Officially: 75 Percent for European Union

Results of the referendum held in the business center of London have been processed.

 

City men are against Great Britain’s exit from the EU. This is demonstrated by vote in London City, where 75 percent of voters have said a firm “no” to Brexit.

 

Publication date: 25 June 03:24 PM

Most British Citizens Support Brexit

According to The Independent, with reference to the recent survey conducted by the ORB, 55% of the U.K. citizens support the idea of quitting the European Union, which is also known as the so-called Brexit. Apparently, the remaining 45% still want to stay in the European Union. It is interesting to note that 12 months ago, the entire picture was the opposite.

Publication date: 14 June 09:33 AM

U.K. Counts Possible Financial Losses In Case Of Brexit

More and more experts and observers start speculating on the possible fate of the United Kingdom in case of the so-called Brexit, which stands for the British exit from the European Union. They keep on trying to predict the financial losses awaiting the U.K. people down the road if they dare quit.

 

 
Publication date: 26 May 09:56 AM