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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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Overcoming Default, Worldwide Cases

Ukrainian lenders and professional advisors dealing debt restructuring are going to meet in New York this week. The meeting is designed to discuss some technical issues related to the structure of the Ukrainian debt and clarifying those ambiguous points that seem unclear to the holders of Ukrainian bonds, Market Leader reports.

Publication date: 01 July 09:57 AM

Greek Crisis Has Political Rather Than Financial Roots

The increasing amount of political disagreements and confrontations in Europe may seem the result of a tough “end-game” in a “chess game” between Greece and the troika of international lenders.

 

Publication date: 01 July 09:55 AM

Greek Referendum - Bad Idea but Still the Lesser of Two Evils

Greece has been in the headlines for quite a while. The Greek economy is on the verge of falling into the abyss of recession after defaulting on its debt. However, it is still unclear whether Greece are going to quit the Eurozone.  There are almost zero chances to save the day. However, the existing Greek government is currently trying to avoid responsibility for the disaster Greece has found itself in. As you probably know, the local authorities are going to hold a nationwide referendum to let the Greek people decided the fate of their homeland as well as their own destinies.

Publication date: 30 June 05:22 PM

Greek Crisis Causes 50 Billion Euro Damage to European Banks

After the Greek government announced a nationwide referendum on the fate of Greece as a Eurozone member on June 28th, European banks lost 50 billion EUR or market capital, European media report.

Publication date: 30 June 01:07 PM

Credit Suisse Rates Grexit Odds as 1/3

According to the analysts working for Credit Suisse, the odds of Greece quitting the Eurozone is 1/3. They assume that in case the so-called Grexit does happen, the Eurozone is unlikely to suffer a lot for it. This opinion is included in the latest overview for investors.

Publication date: 30 June 10:02 AM

Brussels Gets Ready For Grexit After Referendum

According to some international web sources, Greece may well quit the Eurozone in the near future after holding a nationwide referendum on whether the government should compromise with the troika of lenders. The referendum is scheduled for July, 5th.

Publication date: 29 June 03:52 AM

Greece Will Hold Referendum on Lenders’ Conditions on July 5th

The never-ending talks between Greece and its lenders are still underway. While Greece want its debt to be restructured to avoid a default and Grexit, the lenders want Greece to make concessions in terms of introducing more austerity along with multiple structural reforms.  Despite the fact that the parties have become closer to compromising, there are still some unresolved issues on the agenda.

Publication date: 28 June 04:19 PM

Greece Wanna Stay in Eurozone

The never-ending Greek talks are still underway. Greece still cannot compromise with the troika of lenders over the debt and expected reforms needed to avoid a default. While there is no solution seen as the talks are nearing the deadline, the expert community is getting increasingly convinced that Greece doesn’t want to quit the Eurozone. Yanis Varoufakis, Greek Minister of Finance, says that Greece wants to compromise and stay in the Eurozone while avoiding a default but the conditions put forward by the lenders are weird and tough.

Publication date: 26 June 09:28 AM

Merkel Sets Deadline in Greek Talks

Angela Merkel has set the deadline for reaching an agreement in the never-ending talks between Greece and its international lenders. In particular, the German Chancellor defined tomorrow’s Euro Group meeting as the dicisive event in the drama around Greece, Market Leader reports.

 


The difficult talks between Athens and the troika of lender has been underway for quite a long time. So, Germany seems to be determined to put an end to this long-lasting game on Saturday.

Publication date: 26 June 06:05 AM

Greece Gonna Stay in Eurozone, But Not for a Long Time

More and more analysts from around the globe are trying to predict the fate of Greece. At this point, most experts are sure that Greece is going to stay in the Eurozone, but not for a long time.

 


The thing is that Greece has found itself in an economic trap. The summertime is going to be the time of big debt payments, which Greece cannot afford for now. The truth is that the Greek debt is 320 billion EUR, which is 177% of the Greek GDP! Still, on top of servicing the huge debt, the Greek authorities are obliged to pay salaries, pensions and provide social guarantees along with conducting reforms.

Publication date: 23 June 07:58 AM