Brussels yesterday metamorphosed itself into Hollywood for the evening, as European leaders were met with a red carpet and a barrage of photographers, before entering in to vital talks which aimed for the night’s big prize of saving the Euro. The plan unveiled after 10 hours of negotiations seems to have persuaded markets, for the time being, that the Euro has been saved this year.
The biggest loser of the evening was the Private Sector, whose haircut on Greek debt was increased from 21% to 50%. This should help reduce the Greek ‘debt to GDP ratio’ to 120% by 2020. Confirmation was also given that European Banks would have to lift their tier 1 ratio to 9% by June 2012.
The best action for the evening was awarded in Rome, where rifts between opposition MPs over pension reforms resulted in a fight breaking out between the leader of the opposition Future and Liberty of Italy party, and the leader of the coalition partner, the Northern League. Despite this, Silvio Berlusconi managed to deliver a ‘letter of intent’ to the EU summit, promising a much delayed economic development plan by the 15th November. Unfortunately, this letter of intent is already being ripped apart by Italy’s largest trade unions, raising questions over the ability of the government to push through the plan for the most wide scale market reforms in Italy’s history.
The premier announcement was the news that the EFSF would be leveraged up to €1 trillion. The two methods for increasing this leverage have been outlined as: (1) the insurance of a percentage of Sovereign debt and (2) the creation of a Special Purpose Vehicle through the IMF which will encourage investment in EFSF bonds from the outside, with surplus countries like China being targeted for investment. However, it still isn’t apparent if China will ride to Europe’s rescue.
Unfortunately, the plans announced yesterday mean that yesterday’s Hollywood-esque summit is unlikely to be a one off, and is indeed more likely to be an annual event until one of the Euros central issues of trade imbalances is addressed.
Risk currencies (Euro, AUD, CAD, and NZD) have been boosted against both the USD and GBP following the European announcement. This could continue into the afternoon, if the recent positive economic indicators from the US reveal a positive Q3 GDP reading today.
What does this all mean for me? Well buying your EUR, USD, AUD or any other currency at the wrong time could cost you a fortune. There is no crystal ball but Currency UK can give you the information you need to make an informed decision.