Euro Saved by Greece Bail Package?

EU leaders have reached an agreement to help Greece with a package of €22 billion.  The country, with a vast deficit which is eating on the euro currency has, in the past months, been at the centre of EU debates.

While the currency exchange market was speculating on Greece’s future and that of some other Eurozone countries, the euro took enormous pressure.  Indeed, there were even record amounts of euro -selling from international investors, enough to make a few EU leaders call for an end to over-selling and the damage that speculation can do.

Now, Greece will receive a boost to fix its problems, but is it enough?  Currency investors certainly seemed to be mollified by the news as the euro rose by around half a cent on the news against the US dollar and by nearly half a penny against the pound.

Sarkozy – Public Display of Support for Greece

Greece got a boost from French President Nicolas Sarkozy yesterday, after talks between himself and Greek Prime Minster George Papandreou.

So far, EU leaders have been less than enthusiastic about helping Greece in a big bailout package.  Luckily for them, the country does not (so far) need a package, having already announced austerity measures to tackle the massive 12.7% deficit problem.

Mr Sarkozy attacked speculators on the foreign exchange market and on the bonds market, for attacking the euro.  Indeed, in recent months the amount of positions against the euro reached record levels.  However, after the French President’s comments, the currency took a boost and rose against the US dollar.

Are speculators going too far, or are they right to avoid the single currency as Greece – and possibly other EU nations – struggle to tackle their major fiscal problems?

W shape Recession Warning from IMF

Apparently it will be crucial for governments (including that of the UK) to focus on pubic debts in the coming year.  Tell us something we don’t know about, Mr Strauss-Kahn aka head of the International Monetary Fund (IMF)!

Mr Strauss-Kahn made a general warning to all developed nations that they ought to be careful about exiting current fiscal stimulus plans, as doing so too quickly could cause another downward turn.

Meanwhile, emerging economies (is China really still classed as emerging?) in Asia are leading the way for the recovery, said Mr Strauss-Kahn.  Overall though, he said that the IMF predict that the global economy will grow by 4.1 per cent in 2010.

Over in the currency exchange market, the euro stayed weak in early trade in the London session.  It reached to below 88 pence against the pound meaning its weakest point in four months.  Most experts warn that Greece’s fiscal woes are the main reason for the euro’s performance.

IMF to Sell Bonds

It looks like there may be some power shifts within the IMF over the coming years.  The BRIC nations (Brazil, Russia, India and China) – or more clearly the main emerging market economies – have been pushing for more say within the Fund.  Now it looks like things are slowly gaining pace.

The IMF is set to approve plans to sell around $150 billion of bonds in a bid to boost its abilitites to aid nations.  It has certainly been stretched since the global recession took speed, aiding Pakistan and Iceland to name but two nations.

Selling the bonds is hugely supported by the emerging markets as it would give them more voting power.  All BRIC nations have indicated that they would buy hefty amounts of bonds.  They would rather this than pure contributions, which have also been planned by the G20 nations.

China itself has been repeatedly calling for a new global reserve currency, because there is too much power behind the US Dollar (it feels).  It has even requested that SDRs become the new reserve.  SDRs (Special Drawing Rights) are a unit of account for IMF members and were created in 1969 as a support to the foreign exchange system of that time.

A fight for power or a more even distribution for the underdog?

Stress Tests for Europe Banks?

The IMF’s Europe boss has called for European countries to copy the USA.

Marek Belka, IMF’s Europe director, has said that he believes undertaking stress tests on banks would be a good idea, given how much it helped the US financial sector to get an overall view of the situation for banks, as well as actually improve confidence for investors and foreign exchange markets.

The IMF revised its forecast for Europe in Spring, and the outlook was worse than had hitherto been predicted – all economies in Europe would suffer shrinks, Ireland being worst hit with a contraction of 8% in 2009 alone.

But it Mr Belka asking for the stress tests to gage how realistic these predictions are?  Is he showing a lack of confidence in his data or does he really just think it would be a good idea for governments to ‘weatherproof its institutions’?

Budget Divides

Budget time!

Predictions for the UK economy were slammed by opposition parties – no surprises there – but Mr Darling’s startling forecast of growth, by 3.5% by 2011, did seem a tad optimistic. He insisted however that this was “within outside forecasts”..

Borrowing is also set to increase yet further, to a record £175bn, and many are concerned about the wealth and confidence of the country in the time to come. Did the speech have a negative effect on the British pound? Of course it did, though it was unlikely to be the only factor affecting the currency market – but it did trade at 89.62p to the euro afterwards.

So a mixed bag to choose from when it comes to making our minds up in our feelings about the future of the UK’s economy. Take your pick – all sunshine and positive growth, or maybe doom and gloom is more your stance.

Brown and the Billions

So, while Gordon Brown prepares to inject a fresh load of cash into Northern Rock in a bid to increase lending in the UK, he also dashed over to Berlin to meet G20 leaders.

The Big Deals – Germany, France, Britain, the Netherlands, Spain and Italy – met to discuss common targets ahead of the next G20 meeting on 2nd April, to be held in London.  One major announcement out of the talks is the new IMF fund to be set up in order to boost the Eurozone – and at $500bn it’s apparently still not large enough, according to Brown.

In general, the country leaders tried to come to some agreed outlook on ways of tacking the crisis.  It is at times like these, when countries are dealing with a negative influence, that issues can become highlighted.  One that has had many divided is the success of the Euro.  Does a situation like this highlight problems in a shared currency, and are there elements of it that might make some decide to pull out in the years to come?  Would it be more trouble to start afresh outside of the Zone?

These are interesting topics for discussion and theory, but perhaps it is too early to give it more than hyperthetical thought.  Yes, there has been increased strain on stronger countries – Germany in particular – out of a shared interest rate, and the possibility for bailing out weaker countries, but in actual fact the currency as a whole has been a success.  What happens in the next couple of years is going to be interesting to say the least.

So while Gordon has a lot on his plate in the immediate surroundings, and seems yet more willing to inject cash into the UK, he will have his work cut out at next the G20 summit, of which he will be the Chair.

Future of the World Economy

If you’re 25 now, take note: by the time you’re heading to the age of 50 and possible retirement, things are going to start getting better in the world economy.  Yes that’s right – start getting better.

The International Monetary Fund have released their new prediction for what is in store for the world, and it doesn’t make for light reading.  The worst hit will of course be Britain – who else?  In the UK, growth will be down by 2.8% which is the worst rate of all developed nations.

This data means that world growth is the worst it has been since World War II.  And things aren’t set to improve until around 2030.  The IMF didn’t have much good to say except that there will be a slight increase in growth in 2010 – to around 3%.

The best foreign exchange rates are likely to be something that require a bit of patience to find….

One person who is hoping to make a significant difference is President Barack Obama who today had his financial stimulus plan passed at last.  The Republicans weren’t happy with it, saying it was far too expensive at $819bn but it will take a little bit of time to see what level of difference the plan will make.