UK Exposed to Irish Bailout?
This afternoon we have heard that the UK has a 13% exposure to the Irish debt situation and has therefore been called upon to help in a bailout package that could total upto â‚¬100 billion Euro’s. Mervyn King has stated that the UK’s exposure is by no means trivial which is in most traders eyes a significant understatement.
Eurozone members today in Brussels seem to think it only fair that the UK is involved in the bailout of Ireland, as a result we have seen a fundamental shift in cable and the market reversal has subsequently seen price plummet over 1.2%. What was still looking a bullish market yesterday is now looking very bearish with no significant key support until 1.5650.
The Euro has rallied against the pound and the US Dollar as investors speculate that any bailout package would provide stability and more confidence in the Eurozone. If the outcome of the meeting in Brussels ends in a stalemate with Irish finance ministers still refusing to take aid we would expect to see the Euro decline rapidly. The Irish prime minister as of 1700 maintains that no bailout package has been applied for and the Irish finance minister refuses to comment on the matter. The likelihood is that some form of rescue will be announced in the coming days as Eurozone members continue to push for a quick resolution to this rapidly growing thunder cloud looming over the Eurozone.
Sterling has lost ground today due to comments from Mervyn King suggesting that QE could still be on the cards next year. This isn’t really a surprise following recent statements suggesting that the BoE will adopt a ‘wait and see approach’. However it seems that as always, traders continue to thrive on making profits on trading short term swings caused by these kind of comments whenever they are made.
Global stocks have continued to decline stringing together the 7th day of losses. This is the longest streak of losses since January this year and can be attributed to China potentialy acting to slow economic growth after the China Securities Journal reported that the country will introduce measures to control rising food prices in the worldâ€™s fastest-growing major economy. The Equity markets in Europe have continued to extend losses as Austria threatens to block payment to Greece towards their rescue fund. This kind of unrest can only be expected to continue as the weaker countries in the Eurozone become ever more reliant on the stronger ones for hand outs.
There is a significant argument for a breakdown of the Euro in the coming years if unrest continues and hardship payments continue to be necessary to bail out member states that haven’t been able to keep their finances in order. The question is where does it stop, why should countires like Germany and Austria be expected to dole out fellow Eurozone members when they run into trouble.
When the Euro was originally set up it was written into contracts that there should be no need for one country to bail out another. Of course aid was never ruled out if deemed to be necessary. The problem now is that aid has turned into Billions passing from the richer members to the poorer and will now undoubtedly lead to continued unrest as the situation becomes increasingly unfair.
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