This week we will continue to focus most of our attention on the euro zone situation.
Here are the big developments to keep an eye on:
Troika Returns to Greece - Greece continues to be in the spotlight as we do have the EU and IMF inspectors returning to the country to make their decision on whether to grant Greece its next installment of aid. Part of the slide recently has come as a result of the concerned that Greece would not secure this aid and would therefore fall into an unorderly default. Greece has committed to undertake further austerity measures and to accelerate recent measures in order to secure that aid which gives the market expectation that they will in fact get it. A positive resolution here bring some relief, while failure to extend aid will turn into a rout for risk appetite.
Thursday – Bundestag to Vote on EFSF Changes – Another key development to watch will be the German parliament voting on the EFSF – the changes that were agreed to for the bailout funds from the July 21 summit. The measure is expected to pass and will be held on September 29. It’s followed up on Friday with the Austrian Parliament voting on the EFSF changes as well. If either of these votes fail that would be a major blow and would cause a sharp decline in the euro. Now, in Germany what we want to see is how close the vote will be is that will be a proxy for the amount of support there is for bailouts in the region’s largest economy.
The willingness of Germany to continue to expand on support measures will be key to resolving this crisis, and if the political will is dissipating for such action that events may turn decidedly negative.
Will European Leaders, ECB Help Things, Or Undercut Them - Over the weekend we’ve had a lot of pressure directed at European leaders as well as policy makers of the ECB by other countries. They would like to see the ECB step up their efforts to contain the crisis while European leaders are urged to increase the size of the EFSF or to take on other measures such as helping recapitalize their banks in order to stop the spread of contagion.
This week has started with the ECB putting forth some measures to help stimulate financial markets – including talk of restarting its covered-bond purchases as well as restarting its 12 month loans. There’s also been a lot of talk of the ECB lowering its interest-rate in it’s October 5 meeting, though that depends on which ECB official you talk to.
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