The mess that is the European financial system continued to hammer investor sentiment on Friday with a high-profile ECB resignation showing the lack of coherence in policy decisions. Chief Economist Juergen Stark, the most senior German member of the European Central Bank resigned on Friday in opposition to the bank’s bond buying program, much like Axel Weber, former head of the Bundesbank did in February this year. This shows that the German financial powers that be are unhappy with the direction of the ECB. It also comes at a crucial time for the ECB with negotiations around the Greek bailout package and the inclusion of the private sector.

It also comes at a poor time for Angela Merkel as she battles to convince her party members that the debt situation needs more financial guarantees as opposed to less. You have to remember that she was dealt a blow at a local election level last week so it is not like she is top of the charts already at the moment. The euro and other risky assets have slipped further into the mire this morning with GBPEUR hitting a 6 month high overnight of 1.1720.

Sterling’s gains are under pressure however this morning as a result of the Vickers report into the separation of retail and investment banks in the UK. While I’m no banking analyst the basis of the report states that the retail and investment sides of banks are to be ring-fenced and a firewall set up to protect individuals money from the so-called casino banking activites that dragged the world financial markets into meltdown. Any imposition on the banks will hurt profits going forward and, given the size of the banking sector and its contribution to the UK’s GDP, likely hurt sterling. Although it is all relative to the complete maelstrom that is surrounding the EU at the moment.

At the time of writing, rumours are swirling through the market that French banks are in danger of ratings downgrades as a result of their soverign bond holdings with some people suggesting that some banks may be prone to part-nationalisation in order to keep them upright. All of this is combining to form a fairly horrific picture this morning.

Latest exchange rates at time of writing