Business World

Friday 15 December 2017

Debt Crisis: Stocks surge on hopes that area’s problems will be contained

The Criminal Assets Bureau helped recover about three million euro last year
The Criminal Assets Bureau helped recover about three million euro last year reporters

EUROPEAN stocks rebounded from lows last week amid hopes that plans to sort out the eurozone debt crisis are intensifying.

The German DAX was up 3.97pc, France’s CAC rose 4.36pc and the FTSE gained 2.40pc today after draft guidelines revealed that Europe’s €440bn rescue fund could insure up to 30pc of the sovereign bonds of member states.

There is also growing speculation that the International Monetary Fund could be tapped to the tune of €500m.

Markets were also buoyed by record holiday sales in the US.

While European markets often gain ground ahead of key meetings in Europe, with a European Council assembly scheduled for next week and finance ministers meeting this week, analysts said that European leaders are being pushed into a situation where they have to do something.

Minds were focused recently when Germany, the area’s biggest economy, only raised two thirds of the money it wanted in a bond auction while the crisis has also spread to Italy, Spain and France leading to speculation about a collapse of the euro.

US ratings agency Moody's has warned that all European Union sovereign ratings are threatened by the current financial crisis.

"The probability of multiple defaults by euro area countries is no longer negligible," the agency warned. "In Moody's view, the longer the liquidity crisis continues, the more rapidly the probability of defaults will continue to rise.”

The agency added that a series of defaults would also "significantly increase" the likelihood of one or more members not simply defaulting, but leaving the euro zone.

"The continued rapid escalation of the euro area sovereign and banking credit crisis is threatening the credit standing of all European sovereigns," the agency said in a new special comment.

"In the absence of policy measures that stabilise market conditions over the short term, or those conditions stabilising for any other reason, credit risk will continue to rise," it warned.

Ireland along with Greece and Portugal has suffered rating downgrades that led to unsustainable rises in borrowing costs over the past two years.

Spain and Italy, which has opened its books to international auditors, have also come under pressure in recent days. France recently announced deep budget cuts in a bid to retain its top Triple-A rating status.

France is now struggling to hold onto the top ranking it shares with the stronger euro zone economies of Germany, the Netherlands, Austria, Finland and Luxembourg.

Political uncertainties in Greece and Italy and the worsening of the economic outlook across the euro area had given rise to "the likelihood of even more negative scenarios.

"Moody's believes that any multiple-exit scenario - in other words, a fragmentation of the euro - would have negative repercussions for the credit standing of all euro area and EU sovereigns," the agency said.

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