EU Finally Approve Bailout Plans

The ECB slashed interest rates to 3.75% from the previous 4.25% as part of the unified move with 6 other countries. Reasons cited by the ECB were the deterioration in growth prospects and a weakening inflation outlook

The Euro itself struggled through another week. Euro dollar came under continued punishment as traders shunned the euro and favoured the dollar. As panic set in it fell to levels of 1.3550, where it eventually found some support. Euro managed to regain some of the losses it made against Sterling late in the week but still ended the week in negative territory on that cross.

This may have been avoided if policy makers weren’t so slow to act as markets crashed around them amid fear the crisis would deepen within the region. Equity indices the DAX and CAC recorded their largest falls in history last week, losing a whopping 25% each.

It was better news over the weekend however, as the ECB finally arrived at a package to revive the financial markets within the region. Banks will now “be able to borrow any amount they wish against the appropriate collateral in each jurisdiction”.

Bank bailout plans have been delivered by individual member’s states also, and most have adopted an approach similar to that of the UK. In a bid to strengthen capital levels and provide some liquidity in order to get credit markets flowing and confidence to return Germany has approved a rescue plan worth €500bn, France €350, the Netherlands €200bn and Spain €100bn. Italy was bold enough to not cap the limit and said it would spend whatever was required. Equity indices took the news very positively and reacted early in the week with massive rebounds

This week we look forward to watching how markets absorb the plans tabled by the member states as it is a slow week on the data front

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