Political Progress Did Not Increase Optimism In EU Markets

Is Greece on the way to another Bailout?

European finance ministers assured Greece this week that the bailout money promised as part of the second rescue plan will be soon transferred.

These are the funds frozen since June, including the payments for the third and fourth quarters.

In addition, the deadline for Greece’s compliance with the austerity program targets (imposed within the second rescue package) was extended for another two years.

However, as economic textbooks teach, there are “no free meals”:

The deadline extension requires an additional funding of 32.6 billion euros, in order to finance the additional deficit in the next two years.

We note that finance ministers postponed their decision regarding the source of funding for the coming week to November 20th.


In the past week the EU deficit enforcer, Olli Rehn, removed another obstacle facing the Spanish government before approaching for a possible rescue request.

Rehn praised Spain’s Prime minister for his efforts to try and reduce budget deficit and announced that spending cuts and taxes increases implemented by the Spanish government in 2012 and those planned for 2013 satisfy EU representatives.

In addition, EU representatives have delayed their request that Spanish deficit will reach less than 3% of GDP to 2014.

On the negative side we shall note that austerity measures continue to burden Spanish economy which contracted in the third quarter (for the fifth consecutive quarter), in a quarterly rate of 0.3%, a level reflecting an annual decline of 1.6% of GDP.

The Spanish government hadn’t decided yet whether to file an official aid request, contributing to a fifth consecutive weekly increase in the spread between 10 year Spanish bonds and the German equivalent, which was 448 basis points.

Regarding to economic data, we’ll negatively note EU’s industrial production which fell in September more than expected, to a level reflecting a yearly decline of 2.3% and that the European economy has contracted by a quarterly pace of 0.1% in the third quarter.

Furthermore, recall that expectation surveys indicate a continued contraction of European economy.

Of these surveys we note the ZEW survey, which examines investors’ assessments regarding the economic situation in Germany and fell sharply in November.

This constitutes evidence that the optimism prevailed among investors after the declaration of the ECB’s bond purchasing plan in September begins to fade.


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