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Friday, 31 July 15:19 (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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Italy Follows In Greece’s Footsteps, Consequences Maybe More Considerable

Emergency meetings follow each other. Eurozone nations are trying to save Greece. At the same time, experts have raised the alarm - Italy seems to be the next Greece. Yet, this time, if that’s the case, the Greek crisis will seem nothing compared to the Italian one.

 
Publication date: 30 July 04:18 PM

Standard & Poor's Upgrades Greece’s Credit Ratings

On July 21st, Standard & Poor's, a well known international rating agency headquartered in the USA, upgraded Greece’s credit ratings – both in national and foreign currencies. The ratings went 2 steps up from CCC- up to CCC+, with a stable forecast, Market Leader reports.

 
Publication date: 23 July 04:58 AM

Greece Reopens Banks As Consumer Prices May Grow

Since today, July 20th, Greece has finally reopened its banks. This happened after the banks were close for 3 weeks. At the same time, the VAT and consumer prices are expected to be increased.

 

 
This means that the local banks are going to function under supervision. However, this is not going to prevent depositors and other clients from making major types of financial transactions, including withdrawal of savings.
Publication date: 20 July 10:03 AM

Greeks Express Discontent as Greece Compromises with Euro Group

The latest agreement reached between the Greek government and the Euro Group regarding the conditions for getting further financial support triggered a wave of protests throughout Greece.
 
The adversaries of the compromise with the lenders as well as the supporters of a Greek exit from the Eurozone gathered together yesterday, on July 13th, in front of the local parliament and burned the SYRIZA flag.
 
Publication date: 14 July 04:02 AM

Greece Prepares Reforms for 12 Billion Euro

According to Greek media, the country’s government is preparing a package of proposals on economic reforms for two years worth 12 bln. euro. “It is worth mentioning that such offer exceeds the initial plan by 4 bln. euro,” states the “Market Leader”.
 
Publication date: 10 July 12:33 PM

Beijing Remains At Odds After Stock Market Crash

After a stunning stock market crash in China, the Chinese government is doomed to learn a lesson and understand that a governmental intervention may trigger market panic, thereby escalating the situation. With that in mind, any such intervention may do more harm than good and therefore looks inefficient.

Publication date: 10 July 06:22 AM

Experts Name Reasons For Grexit

The majority of the Greeks participating in the nation wide referendum on July 5th said NO to the offer made by the troika of lenders in exchange for further financial support. This provoked a wave of indignation among financial experts and plain folks.

Publication date: 08 July 07:12 AM

IMF Want to Help Greece

 

Greece keeps on being mentioned in European headlines. It seems like there is some kind of remission after the Greeks celebrated the “victory” over further austerity and the finance minister’s resignation.
Publication date: 07 July 11:05 AM

International Banks Predict Grexit

Some of the world’s biggest financial institutions predict the so-called Grexit (stands for Greek exit from the Eurozone) after the recent referendum conducted over the weekend. The referendum resulted in the NO answer to the offer made by the troika of lenders, Market Leander reports. It is reported that the list of banks predicting the Grexit includes JPMorgan Chase & Co, Barclays, Societe Generale and the Royal Bank of Scotland .

 
Publication date: 06 July 05:19 PM

Predictions For Greece After Referendum

Yesterday’s referendum in Greece resulted in “NO” to the troika of lenders. This means that Greece is not going to practice deeper austerity and perform structural reforms required to get further financial aid from the ECB / EU and the IMF, not to mention debt restructuring.

Publication date: 06 July 04:53 PM