Today has been an eventful day dominated in Europe by ECB and MPC speakers. The BoE’s Mevyn King today reaffirmed his stance that he is maintaining a wait and see approach and may still use more QE in next years policy. The ECB council member Axel Weber has said that the Eurozone may increase the size of the rescue fund to assure markets raising the level of rescue funds available to €750 Billion. The primary objective of these comments is to restore confidence in the single currency. Mr Weber went on to say that if necessary this fund can be increased further.

Contagion from Europe’s sovereign debt crisis is spreading into Spain as traders concerns mount that the bailout fund is not enough. Spain is the Eurozone fourth largest region and the premium to insure Spanish debt is rapidly accelerating. Obviously Mr Webber’s comments today are designed to promote confidence in the markets however his comments overlook the fundamental fact that the ECB will suffer from considerable domestic resistance. Spain’s economy is almost twice the size of Portugal, Spain and Greece combined and poses a serious threat to the Eurozone as a whole if it falls into the same situation as Greece and Ireland.

Ireland will face severe austerity measures to try and reign in the deficit to 3% of GDP by 2014. The irish crisis is so importanat to the markets because of its scale, unlike Greece Ireland didn’t contravene Maastricht rules. Ireland’s crisis stems from its oversized property and banking sectors both of which are heavily burdened with bad debts. Other Eurozone member states are in a similar position and will suffer the same consequences if not careful.

Best Regards
Luke Zorab

00441736 335285

If you have any question or queries or have any currency requirements please don’t hesitate to contact me.