Business World

Wednesday 20 September 2017

Debt crisis: Euro jumps on back of bigger bailout fund hint from ECB

Italian president of European Central Bank (EZB) Mario Draghi speaks during a press conference in Frankfurt am Main, western Germany, on July 5, 2012. The European Central Bank, which cut its key interest rates to new all-time lows, did not discuss any further
Italian president of European Central Bank (EZB) Mario Draghi speaks during a press conference in Frankfurt am Main, western Germany, on July 5, 2012. The European Central Bank, which cut its key interest rates to new all-time lows, did not discuss any further "non-standard" measures to beat the crisis, ECB President Mario Draghi said. AFP PHOTO / FREDRIK VON ERICHSEN GERMANY OUT (Photo credit should read FREDRIK VON ERICHSEN/AFP/GettyImages)

THE euro jumped and European shares turned higher this morning after a European Central Bank policymaker said there were reasons to boost the firepower of the euro zone's new bailout fund to tackle the region's deepening debt crisis.

Governing Council member Ewald Nowotny said there were arguments for giving Europe's permanent rescue fund a banking licence which would allow it to borrow unlimited ECB money, an idea that the central bank has rejected so far.



Investors have become increasingly worried that the firepower of the new fund would be hugely diminished if, as widely expected, Spain needed a full scale sovereign bailout on top of the rescue deal for its banks



The euro jumped to $1.2115 on the comments before paring gains to be up 0.2 percent on the day at $1.2081 and not far from its two-year low of $1.2042 hit on Tuesday.



Meanwhile European Union officials said that Greece had little hope of meeting the terms of its bailout, casting fresh doubt on its future in the euro zone and keeping any renewed optimism for a quick fix to the crisis in check.



"Overall, risk aversion is set to remain highly elevated as no resolution to the euro zone crisis appears (likely) to come out over the short term," Credit Agricole analysts said in a note to clients.



MSCI's world equity index, which has lost about 2.7 percent this week as concerns over the impact of Europe's debt crisis on corporate revenues globally have mounted, was down about 0.2 percent to 303.03 points.



The FTSE Eurofirst index of top European shares which had opened lower for a fourth straight day edged up 0.1 percent at 1,019.52 points.



Fresh economic data due out later could also depress sentiment with markets expecting a further moderation in the July German IFO business climate index, and looking for UK GDP data to show its third consecutive quarterly contraction.



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