Tuesday 6 December 2016

Next week to prove vital for mending Euro crisis

Published 08/01/2012 | 05:00

Five days of bond auctions will set down a marker for euro's survival

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THE next five days will be pivotal for the future of the euro. The relative calm on markets over the last three weeks will be tested by a hugely anticipated spate of European bond auctions over coming days.

The success or failure of this major slate of bond sales will set down a marker for investors ahead of the crucial eurozone meetings at the end of January. The results of these auctions may have a bearing on whether Ireland returns to the bond markets to raise money towards the end of the year.

On Monday, Germany plans to sell around €4bn in bonds, with France auctioning off €7.7bn worth of bonds with different maturities. This will be followed by a €3.5bn auction of Dutch bonds on Tuesday. Greece is also testing the water with a small amount of short-dated bonds. As the week progresses, another German bond auction, as well as offers from Spain and Italy, will provide a key indicator of investor sentiment.

Healthy demand for bonds and unremarkable yields on these bonds may indicate that investors believe that Europe is on the right track to solving its debt crisis -- but the sight of Germany shooting blanks could see another huge market sell-off.

Ahead of these seismic bond auctions, European markets fell and the interest demanded by investors to hold government bonds rose.

"It's indicative of the sense that things aren't great in Europe," said Jacob Funk Kirkegaard, an economist at the Peterson Institute for International Economics in Washington.

"The panic that the euro was bound to collapse in the next six months has subsided, but that doesn't mean that Europe is in any way out of the line of fire," he said.

The sale of these government bonds will be squeezed by a recent slew of depressing economic and banking news across Europe.

Last week it emerged that German factory orders for November dropped the most in three years, bolstering fears that Europe may be heading for recession and global demand withers.

The euro has fallen 4.6 per cent against the dollar over the last month. European economic confidence fell to the lowest level in two years, with pan-European unemployment at a 13-year high. The grim economic figures also showed that euro region retail sales cratered by 0.8 per cent in November.

The potential of a major credit crunch across the European banking sector rose sharply, with deposits at the ECB soaring ahead of a spate of banking rights issues.

Sunday Indo Business

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