European markets and the euro continued falling on Tuesday, as the situation in the Eurozone remains uncertain. Investors' attention is now focused on Spain, which hasn't submitted a formal request for EU bailout yet, despite being prompted to do so as soon as possible.
The economist also reminds that in the Eurozone peripheral countries “there is growing public backlash over additional austerity measures, which includes raising the retirement age and changing some of the tax structure.”
Spanish borrowing costs fall at auction
The Spanish Treasury held a debt auction on Tuesday during which it managed to sell 4.6 billion euros worth of 12- and 18-month government bonds, out of a targeted 3.5-4.5 billion range.
The country sold 1.019 billion of 18-month T- Bills at an average yield of 3.072% (in comparison with 3.335% seen at the previous auction). It has also auctioned 3.557 billion of 12-month T-bills at an average yield of 2.835% (versus 3.07%).
The drop in Spanish yields was nevertheless widely expected and, as the Danske Bank team of analysts point out, “despite market pressure having decreased, Spain is likely to ask for a precautionary EFSF programme in the autumn.”
European markets fall on renewed debt crisis concerns
Following last week's post-QE3 rally, European markets dropped on Monday, as crisis woes intensified due to an uncertainty surrounding the situation in Spain, which still hasn't asked the EU for a bailout.
German Chancellor Angela Merkel held her annual press conference at the Bundestag in the European morning, during which she gave an overview of the current situation in Germany and commented on the recent developments in the European debt crisis.
The German leader opened the conference by urging EU officials to move towards “closer political co-ordination by the end of 2012,” stressing that it should be done without violating democratic legitimacy. She called for more efforts to reduce debt and deficits by implementing reforms which will boost growth and job creation.
Angela Merkel went on to defend Bundesbank head Jens Weidmann's persistent opposition towards ECB's bond-buying program, claiming that he aims at finding a "sustainable solution to the crisis”. The Chancellor emphasized that the ECB remains independent but it should not interfere in fiscal policy.
As far as Spain is concerned, Angela Merkel said that a “positive tendency” can already be noticed in the country’s economy. She also referred to Greece's problems and assured that EU officials are doing all they can to prepare reforms which will not bring more austerity but rather better organization.
EU banking union plan still a major sticking point
Over the weekend, EU finance ministers, gathering in Nicosia, Cyprus, hit another roadblock on the European Union’s plan for a banking union, a new single supervisor to watch over 6,000 banks in the eurozone.
Several aspects of the plan were not agreed upon, including the number of banks to be overseen and how to avoid marginalization in non-eurozone countries from key regulatory decisions.
As the Wall Street Journal reports, "a number of countries said that a proposed January 1, 2013, launch date left too little time to resolve key issues thrown up by the proposal." Those opposed for the supervisor's start date, according to the WSJ, "include the German, Swedish, Dutch and Danish ministers."
The Sunday Telegraph reports the German finance minister Wolfgang Schäuble arguing that it would "not be possible" for the ECB to assume its new role by early January 2013, time when authorities are expected the central bank to take on the new role. Berlin is also concerned, saying "it will take time to create the sizeable apparatus to do so" the Telegraph notes.