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The Euro Crisis

The Euro Crisis

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Published by: Priya Sharma on Sep 20, 2013
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The Euro Crisis Real-time updates and analysis of Europe's debt crisis January 11, 2013, 8:47 AM Draghi May

Regret a Stronger Euro

Article • • • • • • • • •
THE EURO CRISIS HOME PAGE » smaller Larger facebook twitter google plus linked in Email Print

By Nicholas Hastings

European Pressphoto Agency

European Central Bank President Mario Draghi

Mario Draghi’s commanding performance at Thursday’s European Central Bank press conference appears to have been a game changer. He has convinced the financial markets that the euro-zone debt crisis has turned a corner and that normality is finally returning.

key bond yields among debtor countries have continued to fall and capital inflows have recovered.Global risk sentiment has improved. as many in the market had expected. A stronger euro. Of course. All these countries are key markets for euro-zone manufacturers. Draghi himself admitted that the state of most euro-zone economies remains fragile and the risks for recovery remain on the downside.S. the ECB president has given the single currency an additional fillip just when the euro-zone economies don’t need it. the euro is now being faced with a lot more than just gains against the dollar. Economic expansion in China appears to be back on course after months when it looked as if the country could be facing a hard landing. By suggesting at the press conference that the ECB will not cut rates again just now. These export-driven economies have already had to face more than a 10% rise in the euro against the dollar over the last six months. Now they may have to face even more if investor inflows into the region start to take off again. Mr. the U. should avoid the recession many feared would take place this year. And even Japan. If its fiscal problems are resolved. recent signs of an improvement in the global economy mean that there should be an increased demand for euro-zone exports. However. All very well and good. . Draghi has delivered that he may regret. which has been stuck in recession for years. now looks set to pursue more aggressive monetary and fiscal policies aimed at ensuring recovery. But there is one thing Mr.

just as the euro-zone economies are struggling to prevent a slide into recession over the next few months. . And. economy still flat lining. the Bank of England is expected to introduce even more monetarypolicy easing and drive the pound lower against the euro. This will not only make the recoveries of these economies more difficult. “In our view. So. the global FX reserves data show pent-up euro/dollar demand as emerging-market reserve managers are still overweight dollar and underweight the euro. the euro could be on the rise. despite government efforts to kick start a recovery. With Japan seeking to deliver a cheaper yen at nearly any cost. the euro has already rallied sharply against the Japanese currency. with Swiss banks now essentially charging investors for holding deposits in Swiss francs. but it will also make implementation of key structural and fiscal reforms even harder.With the U.K. Draghi may find that the strength of the euro could well make it even more difficult for the euro zone to recover from the debt crisis.” according to the currency strategy team at BNP Paribas. the euro could also become the focus of renewed reserve diversification by foreign central banks. And Mr. To make matters even worse. the euro is once again finding itself under heavy buying pressure against its Swiss counterpart.

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