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 rating agency has thrown even cooler water into the gloomy EZ peripheral propects. Following last week's downgrade to Italy by 2 notches - bond rating was lowered to Baa2 from A3 on 13 July 2012 - , the agency has today downgraded by one to two notches the long-term debt and deposit ratings for 10, and the issuer ratings for 3 Italian financial institutions, prompted by the weakening of the Italian government's credit profile.
"The ratings declined by one notch for 7 of the affected institutions, and by two notches for remaining 6. The short-term ratings for 3 banks have also been downgraded by one notch, triggered by the long-term ratings changes. Along with the increase in the risk of sovereign bond defaults, the downgrade of Italy's long-term ratings to Baa2 also indicates a similarly increased risk that the government might be unable to provide financial support to its banks in financial distress" explains Moody's on its official statement.
IMF cuts 2013 global growth forecast to 3.9%
The IMF lowered its 2013 global growth forecast to 3.9% from 4.1%, according to an update of its World Economic Outlook report released on Monday. The projection for 2012 remained unchanged at 3.5%.
The IMF warned that the European debt crisis might further damage world growth unless EU leaders take firm steps to combat it. The 2013 growth forecast for the area was reduced to 0.7%. “Aside from supportive monetary and liquidity policies, the timely implementation of the recently agreed measures, together with further progress on banking and fiscal unions, must be a priority,” the IMF said.
Excessive tightening of US fiscal policy in 2013 also might hurt global growth and push the country into recession unless Washington officials reach an agreement on extending some of the temporary tax cuts and soften the severe spending reductions.
Emerging economies, especially China, Brazil and India have seen a slowdown in growth and “policymakers should be ready to cope with trade declines and the high volatility of capital flows,” the report states. Nevertheless, it was recognized that growth stimulating measures introduced in some of the major emerging markets were starting to bear fruit.
Merkel assures that the German parliament will back aid for Spanish banks
German Chancellor Angela Merkel assured on Monday that the German parliament would support granting rescue money to Spanish banks during a special session which will take place on Thursday.
German Finance Minister Wolfgang Schäuble needs to wait until then to confirm before the Eurogroup whether the German parliament approves the payment of 100 billion euros to shore up Spain's distressed banks. A positive vote would allow the minister to unblock the part of the aid in which Germany is supposed to take part.
Merkel declared in an interview for a German television that the motion will most probably be passed, although she insisted once again that this type of rescue should oblige recipient countries to implement strict austerity measures required by the EU.
ECB views on bondholders losses makes a 'risk-off' turn
The ECB is spooking holders of senior bonds issued by rescued Spanish savings banks, after reaffirming its hard-line stance to impose losses on such troubling assets, the WSJ reports.
Up until now, finance ministers in the Eurozone have refused to accept what is seen as a sharp shift in view. The WSJ broke the news through people familiar with the discussions.
FXstreet.com Fundametal Team reported last week the controverial measures that small savers in Spain may face, potentially exposed to suffer billions of euros in losses.
As read in the WSJ: "The ECB's new position was made clear by its president, Mario Draghi, to a meeting of euro-zone finance ministers discussing a euro-zone rescue for Spain's struggling local lenders in Brussels the evening of July 9."
WSJ adds: "The ministers rejected the advice out of concern that financial markets would react badly to the decision. A draft of the rescue agreement, which will provide as much as €100 billion ($122.5 billion) for the Spanish banking system, requires Madrid to force losses only on shareholders and junior bondholders in banks receiving bailout money."
EIB head: Eurozone crisis is here to stay
Very quiet news weekend, with no major headlines on the EZ crisis other than the reckoning by the head of the European Investment Bank (EIB) Werner Hoyer that the misery in Europe is here to stay for the foresseable future.
Mr. Hoyer said on Sunday it would be pretty much an elusion (he used the term "no expecting) to think that the euro zone would emerge from its debt crisis within the next two years.
"The pressure on member states and on the European Union itself to get their house in order will continue for a long time," Werner Hoyer told Germany's weekly Focus magazine. "This is not simply going to last one or two years," he was quoted as saying.
Meanwhile, Andrea Enria, chairman of the European Banking Authority, insisted over the weekend that rules on major banks to keep minimum 9 % capital ratio will become permanent after previosuly announcing the “temporary buffer” to hit by June.
On an interview for the FT, he said: “The key thing will be capital conservation,” Mr Enria told the Financial Times. “We don’t want the capital to be released. We want the banks maintaining this capital level and gradually moving to the Basel III full implementation. We will be asking the banks to develop capital plans to get there.”
