Today European Union (E.U.) leaders expect to establish a permanent rescue fund along with a balanced budget rule for the European region...
Today European Union (E.U.) leaders expect to establish a permanent rescue fund along with a balanced budget rule for the European region. Additionally, leaders hope to move focus away from austerity packages to creating jobs and economic growth. Furthermore, they are expected to report some unused €20 billion funds of the 2007-13 E.U. budget will be funneled into job building as well as financial lending to small and medium sized companies by banks.
Concerns over Greece’s fiscal crisis continue weighing heavily on officials. Until a resolution occurs between Greece’s government and private bond holders about the €200 billion debt the E.U. cannot progress in providing an agreed upon additional €130 billion in rescue funds to the country. Additionally, Greece has requested €15 billion more (€145 billion) as the country struggles to lower its debt within the continuing compromises. Thus, E.U. officials may step in as a condition of any bailout.
As work continues between Greece and its lenders, the summit’s work today will be in the development of the European Stability Mechanism (E.S.M.) led by Germany. The treaty is expected to include €500 billion in funds and replace the current European Financial Stability Facility (E.F.S.F.). The E.F.S.F. has been a crucial part of debt alleviation in countries like Ireland and Portugal. The E.S.M. treaty is projected to take effect a year sooner than previously expected. Those signing the treaty are subject to tighter fiscal policy. Markets are concerned with their being adequate rescue funds in one or both of the bills for worsening debt problems in Greece as well as Italy and Spain. Meanwhile, some economists see the planned tightening of budget rules, changes to structural plans, and increases in the bailout pool will enable stability within the European region.
The EURUSD has retreated at the start of trading by over 100 pips on the Greek concerns. The next level of support remains at 1.3100 which is likely to be broken if negative sentiment continues out of the Euro zone. We are bearish on the EURUSD this week and expect further downside to 1.2900.
Eugene Ross, Analyst
Admiral Markets
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