Tranquil Day In Europe, But Debt Woes Are Predominant

Today, there are no fundamentals from the European continent except the release of the ECB Bulletin for the month of March in a tranquil week. However, still concerns with regard the high debt problems prevailing in many European economies are the main focus of the market.

As of 10:00 GMT, ECB will release its bulletin for March which mainly summarizes Trichet's speech that followed March's rate decision. Policy makers at the ECB left the cost of borrowing unchanged at 1.0% in March and announced they will tighten the three-month market operations in April by returning to variable rate, instead of fixed, that was adopted before the crisis, while will allow banks to get unlimited funds for seven-day operations and the one-month tenders until at least October 12.

Meanwhile, the ECB is continuing the process of rolling back stimulus measures and it also raised its economic outlook for 2011, expecting expansion of around 1.5% after 0.8% expansion in 2010 despite the worrying data released recently that coincided with Greece's debt woes which aroused doubts that economic recovery would falter.

Yesterday, German exports tumbled to -6.3% from 3.4% in January in spite of the euro's depreciation against the dollar which reflects the weakness in demand and slowdown in the mild recovery that was largely driven by the large amount of money spent by governments and central banks.

With regard to Greece, Trichet said in March 'I don't trust that it would be appropriate to have the introduction of the IMF as a supplier of help.' He also added said getting help outside the EU show the inability of union to solve its own problems.

Trichet encouraged the measures undertaken by Greece and ensured that the suggestion of Greece to leave the EU is not welcomed. The Greek economy pledged to raise 4.8 billion euros through increasing taxes on tobacco, alcohol and sales to in addition to reducing public workers' bonus payments received at holidays by 30%.

However, speculations are referring that Greece may receive financial assistance from the EU as announced by Sarkozy who mentioned that such assistance might happen in May if needed. Hopefully, the EU may bailout Greece to stop the deterioration in the euro that dropped nearly 5% against the greenback since the beginning of the current year.

The outlook for the euro region is coming even worse than other major economies with the decline in spending from one hand and the inclining debts on the other which unfortunately coincides with the end of stimulus programs that will leave the economy to its own forces without any external help.

The problem is not only in Greece but also in other European economies, especially Spain, which has the highest jobless rate in the euro area and still mired in recession, and had a 2009 deficit of 11.4% of GDP; also, Portugal that had a deficit of 9.3% of GDP.

Fitch has revealed its negative outlook on Portugal's rating since September and announced on Tuesday that credit rating for the country may be downgraded if its fiscal consolidation program is deficient. By the same token, Moody's Investors Service has an Aa2 rating on the Portuguese debt, whereas Standard & Poor's reduced Portugal's grade to A+ in January last year.

Thus, debt woes are widening day after day and the EU has to intervene before the contagion spreads to other European economies which might end in a far-reaching calamity.

Ecpulse

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