Europe saved euro exchange rate, but what is the price?

How could escape Old Europe?

In brief: The European economy is temporarily saved, the euro exchange rate also stabilized and may slightly increase - according to experts and analysts.

Is it true that Europe has made the impossible and got free cheese? And it looks that way, judging by the movement of stock markets, currencies and securities with fixed interest rates after the implementation of programs to save 750 billion euros. Investors breathed a sigh of relief, and shares soared upwards in all areas of the world after reporting a 20 percent increase in stock price of European financial companies, which is hard to believe.

Saved state bonds went into the rally as central banks have begun to monetary stimulus. Euro rose from his knees after falling in the past two weeks, when investors have already put a cross on it. Opinion and cemented after a huge number of measures to ease monetary policy adopted since the beginning of the credit crisis that salvation dalos Europe free, it seems, is beginning to melt. People began to realize that the debt of the private sector simply change of state, and they did not like it. Despite the fact that the government transferred the responsibility for repayment of debt on the shoulders of others – usually taxpayers or investors – and to extend the payment terms of this debt is not disappeared.

Then who pays?

At first glance, seemingly, Germany. To protect the banks and other financial institutions from the risk of default of Greece, Portugal and Spain, it was supposed to share someone else. And that someone put German taxpayers. Germany’s Cabinet approved the country’s contribution to fund a $ 1 trillion. Designed to save the future of EU member states from default and stabilize the current euro exchange rate. On Tuesday at an emergency meeting of the German government approved the country’s participation in the program of the European Union to stabilize the common currency. Under this program, Germany will give credits and state guarantees worth up 123 billion euros. In terms of management of the market, the growth yield of Germanic bonds should offset the diminishing returns of Greek, Portuguese and Spanish counterparts. Thus, Germany have sold their shares, but their profitability has returned to the level reached a few days ago. Yield Buwayhids can grow, but the last case suggests that this is no guarantee that the peripheral countries did not abandon the obligations of debt, until a new crisis breaks out.

It could be inflation. If the European Central Bank not be able to adequately complete the program by buying bonds, and he eventually will have to monetize its debt away countries, euro area inflation will begin to fester. From her hit investors.

It is not surprising that the Germans would be against. Association of German taxpayers accused Angela Merkel to take a frivolous decision on the participation of Germany in the stabilization of the single European currency. “Taxpayers simply taken by surprise, placing them before the fact that they have to save the European currency”, – considers the head BdSt Holtsnagel Reiner. Germany will do everything that depends on them to get to Greece, Spain and Portugal to introduce austerity measures to prevent a sharp rise in consumer prices, which can lead to loosening of monetary policy. The governments of these countries make the pledges made to maintain financial integrity, to raise interest rates and reduce government spending, and there – whether that be! Their debt burden will be heavy as ever, and they have virtually no prospects for growth. European countries facing problems in the debt market, the need for a closer focus on reducing their budget deficits, said the first deputy head of the International Monetary Fund, John Lipsky.

“Let us see what will happen in those countries who need to take action to reduce public expenditure”, – said Lipsky. Spain and Portugal pledged to cut spending in an agreement for a loan from the European Union. Portugal’s deficit is expected to reach 8,5% of gross domestic product, and in Spain 9.8% this year. Both countries have promised to take “substantial” additional budget cuts of 2010 and 2011. Which will be presented this month.

According to Lipsky, the IMF pledged 250 billion euros – it was merely “hypothetical, theoretical figure. “The IMF does not issue a carte blanche, but promises to support as necessary, and consider each case individually,” – said the deputy director of the Fund, referring to requests for assistance from individual countries. For these countries, cheese is not free and does not seem so very tasty. The Germans will look mercantilists, profit on its neighbors in the euro area. Euro will resemble a straitjacket, restraining the peripheral countries in a state of permanent recession, with rising exports of Germany.

In these countries, anti-Germanic sentiment will become even more widespread in coming years, said recently at Beijing University economist Michael Pettis on his blog. Perhaps, then, this rescue plan will not seem so nice. Especially because it does not guarantee solutions to all problems. Thus, the rating agency Moody’s warned investors that the problems of Greece and Portugal were not yet over despite the creation of a European fund. In a memorandum to investors issued Monday, the agency noted that may lower the ratings of these countries during the month. Lowering the rating of Greece, will probably be greater than previously expected. It may be lowered to Baa, that only one point above “junk”, says Moody’s. As for Portugal, the Moody’s is thinking about lowering its rating at one point, with Aa2 to Aa3. This rating is considered relatively low risk.

Ukrainian Globalist
2010-05-11 21:20, Economics.

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