The scandal caused by UK Barclay's bank fixing the LIBOR rate dominates headlines on Wednesday, as new information is coming to light i.e. the possible involvement of BoE members in the swindle. Markets are also awaiting ECB and BoE's monetary policy decisions, which will be announced on Thursday. The general expectation is of a rate cut in the first case and an expansion of QE in the second.
While Barclay's CEO Bob Diamond, who resigned from his position this week, was being questioned in the British Parliament, the GBP continued its plunge on Wednesday. The sterling was rapidly losing ground against its American counterpart, actually threatening the key support at 1.5600. As the scandal expands in ever-widening circles, Catherine Boyle from CNBC suggests that “the rapidly developing row over manipulation of inter-bank lending rates is turning into a battle over the future of banks around the world.”
In France, the new socialist government has announced its revised budget for 2012 on Wednesday. It includes tax raises which will generate additional 7.2 billion euros. This way Paris plans to reach a balanced budget by 2017.
The new taxes will be imposed mainly on the most wealthy citizens as well as on banks and oil firms. President Francois Hollande aims at lowering the public deficit to 4.5% GDP this year from last year's 5.2%.
France struggling with debt levels
France's troubles are making headlines once again with President Francois Hollande struggling to reconcile his pro-growth election promises with the fact that France is falling deeper and deeper into debt. On Monday night a national auditor warned that the country's budget deficit will exceed the limit set by the EU by 10 billion euros in 2012 and by 33 billion euros in 2013.
According to French PM Jean-Marc Ayrault the actions planned to curb debt include increasing taxes on large companies, banks and oil companies. A 75% tax will be imposed incomes above 1 million euros.
Van Rompuy defends summit decisions
European Council President Herman van Rompuy spoke on Tuesday before the European Parliament on the outcome of last week's EU summit. He described it as a “fruitful meeting” and “another step on the long road to overcome the financial and economic crisis and to correct the structural flaws of the euro-area framework.”
The president listed the decisions on a variety of issues discussed during the meeting including the growth compact, stabilization of the EU financial sector and the deepening the Eurozone economic union. He also said that individual member states cannot block ESM decisions, referring to the Dutch and Finnish objections towards the fund's capacity to purchase bonds on secondary markets.
EU summit decisions called into question
The enthusiasm of the markets brought about by the better than expected outcome of last week's EU crisis summit is cooling down on Monday as various officials already signalize their objections towards some of the decisions.
The spokesman for the Dutch finance ministry said on Monday that the Netherlands do not consider the idea of using the EFSF and the ESM to buy bonds a good strategy, although he did not reject it either.
"Using the existing instruments to buy up bonds will be expensive and can only be done if there is unanimity (between member states),” he said. “That means the Netherlands would need to vote in favor." The spokesman added that the purchases would be evaluated case-by-case.
Also Finland expressed its doubts regarding bond purchases by the EFSF and the ESM on secondary markets, indicating that it might block the funds' action in that respect. The country is planning to demand from Spain collateral for the loans, similarly as in the case of the Greek bailout.