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The financial vortex is swallowing the European markets and the wave of instability is expanding to the east and west of the globe. Stocks and currencies are under renewed pressure. They should decline further in the coming days/weeks.
Euro: More weakness ahead?
Here, we are again. Stocks and currencies are under renewed pressure and should decline further in the coming days/weeks. The Euro, in particular, could fell to 1.3550, 1.3450, if the level of 1.3970 is not overcome again. The uncertainty linked to the complex European’s situation is exacerbated by the disunity among member states and a weaker economic scenario. In Europe, the Gross Domestic Product (GDP) printed 0.2% in the second quarter, down from the 0.8% in the first quarter of the year. Consumption should be mild in the coming months as well.
The job market has weakened, as well as the economic sentiment. In August, it declined at a pace second only to the one registered in 2008, when the financial crisis hit the world. So, The European Central Bank (ECB) will keep rates low for now. The council is now concerned about growth prospective, since inflation is expected do contract. Nonetheless, rates could again decline, if the economic situations would dramatically deteriorate and inflation would have finally moved below the ECB benchmark of 2.00%. In reality, investors are more concerned about the never ending debt crisis in Europe, since the prospective is not encouraging. Let us see how.
How about Greece?
Last week, the German constitutional court approved both the first Greece’s bailout of euro 110 billion and the European Financial Stability Facility (EFSF), the fund created to help troubling European states. Nonetheless, the court specified that the fund should be used as a temporary measure only. On September 29, when the European parliament will vote the second rescue package for Greece, the court’s decision will come to play. Apparently, Athens is not implementing the requested fiscal reforms. Germany, along with other European countries, does not agree with a new bailout. With no aid from Europe, a default would become probable.
The debt of Greece is huge and there is no much more the financial community can do to support the country. A bankruptcy could be a traumatic experience for Europe, but also an opportunity to begin a new phase that could reinforce the continent. It might also be a weak-up call for those nations that have been reluctant to implement radical reforms within the community.
A painful end is for a radical change?
The European debt challenge has deteriorated over the years, contaminating the well-being of the entire continent. In order to find a quick fix, huge amount of money has been invested to help the troubled European nations. In exchange, the financial community asked governments for radical reforms. The results have been unsatisfactory. Measures taken so far have focused more on the short term, like spending cuts for example, then on the longer term approaches, like a fiscal’s and pension’s reform. Radical solutions are not very popular among the electorate and require time to be implemented. Nonetheless, the community has to work together to renew the dream of the founding fathers.
The feeling of inaction is now predominating, as well as an apparent lack of leadership. Greed has been surfacing among member states. An organized European financial policy with a centralized authority should be mandatory and the euro has to remain the back bone of the entire continent. Europe is a country of huge potentiality. The level of education, knowledge and technical research is very high among member states. The continent has a good social system and a good standard of living. It could be an inspirational light in this fragmented world. European leaders have to step-up and make the necessary reforms. The benefits are there and will be enjoyed by the future generations as well. A step back into the past is not an option. Nonetheless, politicians have to act and do it fast.Angelo Airaghi, www.ProfitsOn.com
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