European financial values on the rise

Participation of Michel Barnier, Member of the EC in charge of Internal Market and Services at the ‘Financial Stability and the Single Market – The Keys to Growth in Europe’ conference. (EC Audiovisual Services).

No doubt the screams, mainly coming from English language media, economists and commentators about the possible dissolution of Eurozone have now subsided and only some late comers in the league of those who have bet on Eurozone’s destruction still try to salvage their wrecks, by predicting catastrophe.

On the other side of the fence those who have bet on Europe’s ability to counter its credit and fiscal crisis have made lucrative gains, profiting even from Greek bonds.Overall the outlook for Eurozone is much more stable this year than at the beginning of 2012.

As the President of the European Central Bank Mario Draghi stated yesterday, in his monthly press conference which usually follows ECB’s governing council’s regular convention: “Later in 2013 economic activity should gradually recover. In particular, our accommodative monetary policy stance, together with significantly improved financial market confidence and reduced fragmentation, should work its way through to the economy, and global demand should strengthen”. Of course ECB still predicts that Eurozone’s economy will overall contract this year, counting however GDP changes as from 1 January till 31 December 2013.

There is good news now even from sources that have being shaking financial markets and the political structures for many months. For example the first Spanish bond issue of the year was greeted yesterday very positively by investors. The country’s exchequer raised €5.82 billion, €820 million more than the target, at very favourable interest rates by selling 2, 5 end 13 year bonds.

Ireland’s success

By the same token Ireland, holding for the first half of 2013 the rolling EU Council Presidency, is planning to get out from the Memorandum of Understanding agreed with the troika of EU, ECB and the IMF. At this point it must be reminded that Ireland as from January 2011 is under the “protection” of the troika, in order to avoid bankruptcy. Dublin however has managed to overcome the difficulties much more effectively than Greece and Portugal.

Now the Enda Kenny government is negotiating with the EU, ECB and the IMF an agreement to rid itself from at least from a part of the debts its commercial banks accumulated in the great crunch of 2008 – 2009 and the Republic forcefully agreed to honour. Yesterday Ireland launched a five-year bond and the government said it will resume its monthly debt issues, pondering that markets believe in its ability to abandon soon the bailout programme.

As for Greece the country is still striving to stand on its feet, after the troika released a new huge package of loans and aid amounting to €51.5 billion. Most of it however will be used to pay old debts and recapitalise its four major banks. Only a single digit amount will finance current expenses.

In Italy the appearance of Mario Monti in the main political arena of his country, has triggered a reshuffle of positions of the main political parties from left to right, vis-a-vis the austerity programme applied by Professor’s government over the past twelve months. The question is now if this programme will continue or become more severe after the February elections.

Financial markets

Summing up the broad economic prospects for Eurozone this year they appear at least better than in 2012. The problem is however that still in the South, mainly Greece and Spain are plagued by always growing unemployment, which in both countries menaces their social tissue. Yesterday the Greek Statistical Service announced that unemployment reached 26.8% in October, with 57.6% of young people under 25 without a job.

Greece and Spain however are not threatened by visible political risks that could derail their efforts to cut down fiscal deficits. Actually both have succeeded to close their 2012 government accounts having attained all targets. In the case of Greece the 2012 budget deficit was even less than the troika had predicted it will be.

Given all that European capital markets in both their facets, bonds and stocks, have had a very good start this year. The same is true for the euro parity with the dollar, which reached yesterday its highest level for months at 1.32. With the prospect of a further reduction of ECB’s interest rates appearing now more distant than in December, after some relevant comments by Mario Draghi yesterday, the euro will remain at those high levels with the US currency for the at least the coming weeks. European stock markets will predictably continue on the upwards path they have taken as from the beginning of 2013. All in all European values are now on the rise.

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