The euro rose against the dollar as it was feasible that the European Central Bank and the International Monetary Fund would bail out the larger euro zone economies. This meant that Spain’s borrowing costs fell by half when the country sold more than its maximum target of bills, and as a result the 17 nation currency advanced towards a one week high against the USD.
Market sentiment towards the euro however remains bearish, as investors are reluctant to place bets in favour of the euro due to the growing uncertainty of a break down in the Eurozone.
Eurozone banks will today ask the ECB for €293 billion, but it is estimated that the actual amount of funds provided will range between €150 billion up to as much as €600 billion. This poses significant deflationary risks upon the Eurozone, as many fail to realise that continued money printing and debt issuance will have ramifications that could make the great depression look pale in comparison.
It is our view that banks and nations would be better to default now and to stop driving up the cost of credit, especially given that when the time for repayment comes nations, worldwide will suffer.
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Institutions named in this article:
ECB: European Central Bank- The institution of the European Union (EU) which administers the monetary policy of the 17 EU Eurozone member states.
IMF: The International Monetary Fund - An organization of 187 countries, aimed at fostering global monetary cooperation, secure financial stability, to promote international economic cooperation, international trade, employment, and exchange rate stability.