European Central Bank head Mario Draghi has stuck with a growth forecast of between 0.3% and 0.5% this year and left refinancing interest rates unchanged at 1%. His optimistic predictions contrast with the economic indicators which suggest that the Eurozone’s mild contraction will worsen this year before it gets better.
The ECB is reluctant to help release cash to bail out banks and markets saw the strongest indicator to date that the ECB is running out of ammunition. Finance ministers have to do their best to bring their own houses in order to help improve confidence.
Spain will try to raise €2 billion in 10 year government bonds for the first time after senior government officials said Spain’s access to debt markets is now closed. The cost of borrowing for Spain is currently at 6.20%. Spain has to find at least €80 billion to strengthen its banks, which are struggling due to toxic property loans.
Eurozone GDP stagnated in the first quarter of 2012, with Germany being the only country to have produced growth of 0.5%. Growth could be limited in the year ahead as German industrial production declined 2.2% in April.
Euro strength is likely to be temporary as the markets expect the Federal Reserve and the Bank of England to loosen monetary policy in the near future. It could be a good time in over two weeks to sell Euros and buy USD.