The European Union has made a long way during the 2 years of debt crisis. Learn what's behind and what's ahead on the road by reading the articles and interviews that the FXstreet.com team wrote as part of the special content The European Debt Crisis Chronicles.
Moody's has taken multiple actions on German banks' ratings; most outlooks are now stable. Moody's German bank action means that long-term debt and deposit ratings for 6 groups and 1 German subsidiary of a foreign group have declined 1 notch. Moody's explains that the German bank downgrade was "driven by the increased risk of further shocks emanating from the euro area debt crisis."
As read in the statement: "Moody's also downgraded the long-term debt and deposit ratings for several subsidiaries of these groups, by up to three notches. At the same time, the short-term ratings for three groups as well as one German subsidiary of a foreign group have been downgraded by one notch, triggered by the long-term rating downgrades."
Spain acknowledges it needs bank aid
Spain is asking for help. Spanish Treasury Minister Cristobal Montoro said in a radio interview on Tuesday that the high risk premium on Spanish bonds is keeping the country away from bond markets, which prevents Spain from refinancing its debt.
The spread between Spanish and German 10-year bonds hit a euro area record of 548 basis points last Friday. Ergo, Spain "does not have the door to the markets open," and it is a concern given that The Spanish treasury plans to auction up to €2 billion of bonds on Thursday.
Montoro assured that the recapitalization of Spanish banks does not require excessive funds and he urged EU institutions to help Spain obtain them. The Treasury Minister also stood by the Spanish government's opinion that the country will not need a bailout and that it is necessary to form a banking union in the EU.
Later in the afternoon, Spain's Prime Minister Mariano Rajoy said, in a parliamentary debate, the European Union needs to send a clear message about the irreversibility of the euro by reinforcing integration and creating a common banking union and euro zone bonds.
Rajoy said Spain is in situation of "extreme difficulty" and that Europe needs to help with liquidity issues.
Spain may get credit Line via EFSF - Die Welt
According to Die Welt, Germany is persisting on Spain to activate the European Financial Stability Facility - rescue mechanism - although as Adam Button, Editor at Forexlive puts i, "sounds like that is just one option being discussed."
The precautionary credit line may help Madrid prepare better and have larger sums of capital in case the European debt crisis worsens, Germany’s Die Welt newspaper reported, citing unidentified people familiar with talks.
G7 to join forces and monitor eurozone crisis closely
The G7 meeting has "agreed to monitor developments closely ahead of the G-20 summit in Los Cabos," affirmed the U.S. Treasury Department on a press statement published Tuesday after the conference call held between finance ministers and central bank governors of the seven stronger economies around the world.
"The G-7 Ministers and Governors reviewed developments in the global economy and financial markets and the policy response under consideration including the progress towards financial and fiscal union in Europe. They agreed to monitor developments closely ahead of the G-20 summit in Los Cabos."
Japanese Finance Minister Azumi said G7 countries have decided during the teleconference to tighten cooperation in order to quell the EU debt crisis. According to Azumi, the recent decline in Japanese stock market prices and rise of yen "are hurting the country's economy" and that the Group of Seven agreed to cooperate to "prevent extreme FX moves."
No joint official statement will be issued, which inclines Kathy Lien, Director of Currency Research for GFT, to describe the G7 meeting as a “a complete disappointment.” The expert adds that: “Their lips are sealed which tells us that they are either working on something big or failed to reach an agreement.”
Kathy Lien also hopes that officials at the upcoming G20 meeting “will announce greater support either from Europe internally and/or the IMF.”
Meanwhile and according to Financial Times, the European commission would present banking plan layout tomorrow. "The first elements of that union are to be laid out on Wednesday by the European Commission when it unveils a long-awaited bank resolution proposal," says Jamie Coleman from ForexLive.com. "Where we start this process and where we finish will likely be two very different places," he points out.
