The outcome of the Euro Zone leaders` meeting will be crucial for the EURO`s development
European Council President, Herman Van Rompuy, views this weekend’s meeting of Euro Zone leaders as being important enough to reschedule the date by a week, from the 17th October to the 23rd October. The hope was that the additional week would give European leaders time to come up with a solution to the hugely complex Euro Zone crisis. Hopes, were high at the time, with Merkel and Sarkozy announcing that a plan would be in place by the G20 meeting in Cannes on the 3rd and 4th November.
However, as the meeting approaches, it now seems increasingly unlikely that any solution will be found this weekend. Merkel and Sarkozy now appear to disagree on the best way to utilise the EFSF. German policy makers have spent the week-long delay playing down the importance of the meeting and there are another 15 states that all need to agree on a plan. Whilst still appeasing there local electorate – a point that is proving to be one of the fundamental flaws of the Euro. Therefore the possibility of disappointment at Sunday’s meeting seems high. If this is the case, then we can expect to see the Euro weakening going into next Week.
One of the outcomes which is expected to be passed at the meeting is the release of an €8 billion loan to Greece. This comes after the Greek government passed further austerity measures through parliament yesterday. This was whilst both peaceful and violent protests flooded down Syntagma Square outside parliament. Protesters made their feelings clear that the Country cannot take any more austerity. The danger for European Policy makers is that if they push Greece any further, then an election may be called and the possibility of a full Greek default becomes more likely – this would lead to further pressure on the peripheries bond markets.
It is difficult to be positive about the Euro Zone at the moment, and this will most likely be reflected in the IFO survey of German business expectations today. Market expectations are for the survey to fall from 107.5 to 106.2 in October. Both the current assessment and expectations component are expected to fall, which would point to a slowdown in Growth in Q4 and beyond. The German Government yesterday lowered its forecast for GDP growth in 2012 to 1%.
UK public finances will also come under scrutiny. Government spending has boosted growth in the first six months of the year in spite of the government’s ‘austerity’ agenda. We look for higher tax revenues to continue to promote fiscal consolidation and look for public sector net borrowing, excluding interventions in the financial sector, to narrow from £15.9 billion in August to £14.5 billion in September, which would leave it around £1 billion below its level a year ago. That would keep the government on track to meet its £122 billion borrowing target for the fiscal year as a whole. The OBR has admitted that reduction in borrowing in fiscal 2010/11 has come from lower local government spending. If that continues to surprise on the downside, then deficit reduction should continue to proceed, even with sluggish real GDP growth.
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.