EuroFitch Ratings has published its quarterly investor survey on Thursday, which reveals that European market participants are increasingly worried with the worsening situation of the euro-area banks. In their opinion the ECB should step in by once again carrying out the EUR1 trillion long-term refinancing operation (LTRO).

According to the official publication: “A majority of 53% of survey respondents believe fundamental credit conditions for banks will deteriorate – an all-time-high, up from 45% in Q212 and 38% in Q112. (…) By contrast, only 28% of participating investors anticipate improving conditions for the sector, with the balance (19%) expecting no change.”

The ECB has already carried out two LTRO operations worth EUR1 trillion, one of them at the end of 2011, the other at the beginning of 2012.

Italian government debated submitting request for aid

According to Bloomberg, the Italian government has been extensively discussing the possibility of asking EU bailout funds to purchase Italian bonds, despite earlier declarations from PM Mario Monti that such a move was unnecessary.

Italian Education Minister Francesco Profumo told reporters today that the issue still needs to be discussed, but that he believes the EU would not ask for further budget cuts should Italy decide to sign an agreement on the aid.

“In our case, the memorandum of understanding wouldn’t anticipate additional elements,” the Minister assured.

The spread between Italian and German 10-year bonds reached 446 points on Thursday.

Decision on Greek aid delayed until October

The WSJ reported on Wednesday that the talks on whether further bailout should be made available to Greece would take place in October, instead of mid-September, as it was initially agreed.

The delay was caused by disputes among Greek party leaders who are debating over the package of additional austerity measures. The most contentious question is the planned reduction in civil service jobs.

Troika inspectors will return to Athens at the beginning of September. EU finance ministers will review the Greek bailout program at a summit scheduled for October 8. If the outcome is positive, the EU will proceed with the disbursement of 31 billion euros, a part of the second rescue for Greece amounting to 173 billion euros.

ECB Monthly Report: Risks to EU economic outlook still on the downside due to tensions in financial markets

The August ECB Monthly Report includes information on the latest ECB meeting during which the Governing Council decided to leave the rates unchanged at 0.75%, after lowering them by 25 bps in July.

The HICP forecast for 2012 from the previous report has been maintained at 2.3%. The Governing Council expects inflation to decline gradually and fall below 2% in 2013 (to 1.7%, vs the May projection of 1.85%). It emphasizes however that “a further intensification of financial market tensions has the potential to affect the balance of risks for both growth and inflation on the downside.”

As for GDP the report states that it will fall by 0.3% in 2012 (in comparison with the previous forecast of -0.2%) and register 0.6% growth in 2013 (versus the May estimate of 1.0%). It lists a number of factors dampening growth momentum: “tensions in some euro area sovereign debt markets and their impact on financing conditions, the process of balance sheet adjustment in the financial and non-financial sectors and high unemployment.”

Finally, the report stresses the importance of the implementation of structural reforms by the EU Member States in order to stimulate competitiveness and employment and reduce deficits. It states that it is of crucial importance that EU countries are prepared to trigger the ESM/EFSF lending programs on bond markets when financial stability in the area is threatened.

Stephen Hughes, Director of Currencies.co.uk comments: “In its latest report the ECB has announced it expects another 18 months of doom and gloom before things improve. So, countries in the Eurozone need to wake up to the fact that the situation is unlikely to get any better any time soon and follow the ECB’s pleas to take their own steps to reform their economies. It’s vital that the key players step up once again, playing the waiting game will only let everyone else down.”