SPAIN

CAN THE EURO AFFORD THE SOVEREIGN DEBT WORRIES ABOUT SPAIN ?

THE OUTLOOK FOR THE EURO LARGELY DEPENDS ON WHETHER SPAIN IS FORCED DOWN THE BAILOUT ROUTE.

LET’S PUT IT THIS WAY : IF SPAIN’S PROBLEMS ARE NOT SUFFICIENTLY TOUGH TO WARRANT A BAILOUT, THE EURO MIGHT DEPRECIATE VS THE US DOLLAR IN THE $ 1.25 REGION.

HOWEVER A SPANISH BAILOUT  WOULD BE DRAMATICALLY CONTAGIOUS AND SUCH EFFECTS WOULD PUSH THE ECB TOWARDS MORE LONGER-TERM LIQUIDITY TRANSACTIONS.

THIS WOULD  BOOST THE PERCEPTION THAT MELTDOWN IN THE EUROZONE  COULD  ONLY BE  AVOIDED BY HUGE SUMS OF  FRESH MONEY FROM THE EUROPEAN CENTRAL  BANK.

ALL THESE ISSUES COULD COMBINE TO SEND THE EURO TOWARDS PARITY AGAINST THE US DOLLAR IN THE COMING MONTHS.

TODAY, IT IS SLOWLY BECOMING CLEAR THAT THE ECB FOUGHT THE SYMPTOMS OF THE CRISIS BUT NOT THE ROOT CAUSE.

AS THE MARKET REALISES THIS, THE EURO IS GOING TO BE UNDER ATTACK.

ACTUALLY, THE SINGLE CURRENTLY SHOULD DECLINE SOON AS THE EUROZONE HAS CONTINUED TO LOSE LONG-TERM CAPITAL AND BECOME DEPENDENT ON SHORT-TERM FUNDING.

ALSO, DIFFERENTIALS IN 10-YEAR EUROPEAN GOVERNMENT BONDS ARE TOO LARGE ( END OF MARCH 2012 FIGURES ) NOT TO IMPACT THE PARITY OF THE EURO WHLE KEEPING IN MIND THAT THE INTEREST RATE 3-MONTH FOR THE EUROZONE WAS 0.82% :

  • FRANCE : 3.01 % ( 10-YEAR GOVERNMENT BONDS )
  • BRITAIN : 2.47 %
  • GERMANY : 1.97 %
  • GREECE : 18.2 %
  • ITALY : 4.99 %
  • THE NETHERLANDS : 2.40 %
  • SPAIN : 5.18 %
  • SWEDEN : 2.11 %
  • FINLAND : 2.44 %
  • IRELAND : 6.88 %

HOWEVER, ANY DEPRECIATION OF THE EURO AGAINST THE USDOLLAR WILL BE GOOD NEWS FOR OUR EXPORTS ANYWAY !

SO NOT THAT MUCH OF A PROBLEM AS IT MEANS MORE JOBS IN THE EUROZONE !

PHLDUCX