The European debt crisis continues. On Friday, test stress results were published, Italy approved a tough austerity plan and the president of the European Council called a meeting.
The stress tests were in line with expectations. Six banks failed and sixteen more were suggested to strengthen its capital position. Despite market anxiety, the results were in line with projections and market reaction was muted.
Italy says yes to austerity
Working at full speed, the Italian parliament passed the law that includes an austerity package of approximately €65B. The plan was tougher than the original. Authorities were forced by market tensions to increment austerity measures. The target of the plan is to erase the fiscal deficit by 2014.
“Italian PM’s call for both his and opposition parties to accept the austerity programs, which was promptly followed by a confidence vote, alleviated concerns over the country’s debt profile. In addition to that, Berlusconi emphasized that his government will run a primary budget surplus this year, while Fitch Ratings said that the country can cope with this week’s increase in bond yields provided it meets its deficit-reduction targets,” the Talking-Forex.com Team pointed out.
The bond market is being watch by investors. On Thursday Italy was able to sell almost €3.0B in 15-yr government bonds but yields across the curve are at multi-year highs. The 10-yr continues above 5.5% and the 2-yr above 5.0%.
New meeting
After the release of the stress test results, the President of the European Council, Herman Van Rompuy, decided to convene a meeting next Thursday in Brussels of the Euro area Heads of State. “Our agenda will be the financial stability of the Euro area as a whole and the future financing of the Greek programme. I have asked the preparatory work to be brought forward inter alia by the Finance Ministries,” said Van Rompuy.
Limited reaction
Markets reacted timidly to EU events on Friday and moved sideways consolidating weekly results. The Euro finished the week lower across the board and near the lows against commodity currencies. EUR/USD managed to end above 1.4100, far from 1.3835, Tuesday’s low.
Stocks in the US held steady after the results. Main stocks indexes in Europe and in the US finished the week lower. Gold was the biggest gainer: the ounce rose from $1.544 to $1.595.
Investors remain caution about the future with important uncertainty around, not only from the European crisis but also from the US with its debt ceiling problem.
- Stress Test Round 2: 8 banks failed, 16 near the line by FXstreet.com
- EUR/USD hovering around 1.4160 after stress test by FXstreet.com
- Italian parliament approves austerity plan by FXstreet.com
- Peripheral nations are taking a bite out of Euro by Forex Club
- Forex: EUR/USD short-lived rally after stress tests results by FXstreet.com
- Forex: Euro slightly lower after stress test resultsby FXstreet.com
- Forex News –Sharp Selloffs for the Euro by ForexMansion.com
- Italy in the Muck with the PIGS byWorld First UK Ltd
- Forex – European Credit Concerns Go Global by Advanced Currency Markets
- Heavy selloff across the board and European stocks slump on the worsening debt crisis by ecPulse.com
- Euro area: Eurogroup keeps all options on the table by Danske Bank A/S
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