[Archive!] FOREX - Trends, Forecasts and Consequences (Episode 10: December 2011) - page 158
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As a result of the summit of the European Union leaders, 17 eurozone countries decided to create a fiscal union, which all EU countries can join. ECB chief Mario Draghi described such an outcome of the European leaders' meeting as a "very good result".
However, at a press conference yesterday that followed the central bank meeting, Draghi said the ECB would not increase bond purchases by heavily indebted European periphery countries and would not lend to troubled countries in the region either directly or via the IMF.
Instead, the central bank president announced two refinancing operations for banks, in which he will grant them unlimited loans at fixed rates for three years, reduced the provisioning rate from 2% to 1%, and softened the collateral requirements for loans.
Thus, the ECB did not focus its energies on helping individual European countries but rather on supporting the banking sector in the Eurozone with so-called "unconventional measures" of monetary policy. As such, these measures are strong enough, but the market clearly expected more, and the ECB's reluctance to increase its purchase of European debt, on which it has already spent $207bn, has discouraged investors.
Only 23 out of 27 EU countries have agreed to join the new treaty, which implies giving up some sovereignty in terms of fiscal policy and moving towards closer fiscal integration. The budget pact will thus comprise 17 euro area countries and a further 6 EU states.
Below are the main points of the statement of the EU states, published after almost overnight negotiations:
- Parties to the treaty will be obliged to balance their budgets so that the structural deficit (i.e., the figure calculated for an economy under the natural rate of unemployment at the natural rate of GNP) does not exceed 0.5% of GDP (this requirement should be included in the constitutions of the member states);
- If this rule is violated, the "automatic correction mechanism" will be activated;
- Countries with budget deficits greater than 3% of GDP will be subject to sanctions;
- Treaty Parties will have to submit their budgets to the European Commission, which will have the right to request that they be revised. Member states will have to give advance warning of the amount of borrowing they intend to do.
The full document is available in English here.
Britain, which is not part of the single currency area, led the opposition to the creation of a closer fiscal union within the EU as a whole, noting that such a move threatens it with a loss of sovereignty as well as a worsening of appreciation for the quality of London's financial services. Among the other three countries that did not agree to the treaty changes were Hungary, the Czech Republic and Sweden - the latter two have yet to make a final decision.
Two further novelties regarding monetary union are also worth mentioning:
- The Eurozone will lend the IMF €200bn ($268bn) to lend to troubled European states. Sweden and Denmark, who are not part of the eurozone, have also agreed to participate in the loan.
- Two bailout funds for debt-laden eurozone countries (temporary EFSF and permanent ESM will be managed by the European Central Bank).
The meeting of European leaders will continue today. Its main objective will be to clarify the provisions of the new treaty, in particular, the sanctions for non-compliance with stricter budget discipline rules. Politicians intend to present the final version of the treaty by March.
At the same time, ECB President Mario Draghi and German Chancellor Angela Merkel see the result of the meeting as positive, noting that an agreement in principle has been reached and Europe is on its way to regaining market confidence.
Analysts' comments
Experts BNP Paribas expects that in the first quarter of 2012 the ECB will lower the key rate below 1% which it did not do even during the global financial crisis of 2008. In addition, experts believe that in the future, if the European economy continues to weaken, the Central Bank may well still go for quantitative easing.
ING analysts say that only time will tell if the ECB left the fate of the Eurozone solely in the hands of European politicians. The central bank is now doing its best to help the financial sector by avoiding direct financing of European governments - perhaps the ECB is saving such a move "for a rainy day", the bank says.
Commerzbank believes that if Draghi had not taken away the market's hope of aggressive bond-buying, eurozone leaders would not have such a strong incentive to reform the currency union. In addition, strategists stress that an excessive buying of debt of peripheral countries could undermine the credibility of the central bank, which can never be allowed to happen. The bank does not rule out the possibility that in the coming months, the ECB's approach to monetary policy will change, but in order to push the central bank to active operations in the secondary debt market will need to escalate the crisis. According to Commerzbank, such aggravation would occur if Italy, which is due to make large debt repayments in February, fails to sell enough bonds and collect the required amount.
Waiting for tomorrow, watching TV and hoping Russia doesn't get blown off the world stage.... Otherwise Germany will run out of freebies......... and what to feed Europe with ???
Here is an interesting video !!!
And I'm not encouraging anyone !!!!!!!!!
Waiting for tomorrow, watching TV and hoping Russia doesn't get blown off the world stage.... Otherwise Germany will run out of freebies......... and what to feed Europe with ???
Here is an interesting video !!!
And I'm not encouraging anyone !!!!!!!!!
For those of you who are new, here's a system to work with.
Mona on minutes. If you see a flat, switch to five minutes. In other words, switch to a higher one.
The main thing is not to follow ALL of them. Sit on the fence until the situation matures. And get out without regret at the signals.
What's yours is yours. Do not predict anything. Let it be five pips, but safe.
I'm not imposing, just for example.
The file does not fasten, who needs it - in private.
We have already been through this in Ukraine... It ended with those who said 'Bandits must stay in prisons' - now they are sitting there themselves, taking the president's revenge for their words...
Ukraine will be smaller .... One good thing... Armouries were blown up .... So I sit at home and watch TV and worry ))))
For those of you who are new, here's a system to work with.
Mona on minutes. If you see a flat, switch to five minutes. In other words, switch to a higher one.
The main thing is not to follow ALL of them. Sit on the fence until the situation matures. And get out without regret at the signals.
What's yours is yours. Do not predict anything. Let it be five pips, but safe.
I'm not imposing, just for example.
The file is not fastened, who needs it - in private.
Compress it to ZIP and drop it here )))) If you can't, the question is .... is the signal on this TS once a month ?