Monday

21st Sep 2020

Eurozone back under pressure amid concern over EU banks

  • Juncker: Convinced that Dublin can manage the situation (Photo: eu2005.lu)

The euro drooped and bond spreads for Greece, Ireland and Portugal jumped on Tuesday (7 September) due to a revival of investor fears bout the eurozone, even as European Commission President Jose Manuel Barroso hailed the EU for emerging successfully from the economic crisis in his first State of the Union address.

The yen hit a nine-year high against the euro while the Swiss franc soared to its all-time best position against the European single currency. Separately, the costs to the Greek government for borrowing compared to Germany jumped slightly while the costs to both Portugal and Greece climbed to levels not seen since the creation of the euro.

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It is thought that Portugal took a hit as a result of revelations that the country's banks had gone knocking at the door of the European Central Bank for a record amount of cash as a result of troubles raising funds privately.

Meanwhile, Ireland is dealing with the ongoing consequences of the black hole of debt that is the nationalised Anglo Irish Bank. Last week, the company said it will probably need some €25 billion in fresh capital, equivalent to a full 19 percent of the country's GNP. Credit rating agency Standard & Poor's has said that it believes this to be low-balling the true figure, estimating that the real cost could come to €35 billion.

The vast sums have frightened markets, which worry Dublin will have trouble servicing its debt, and have made it difficult for all Irish banks to raise funds.

On Tuesday (7 September), the European Commission approved a decision by the Irish government to extend bank deposit guarantees until the end of 2010. With the firms very much strapped for cash, the guarantee gives confidence to savers to keep their money in the institutions and prevent a run on the banks.

It is thought that investors were also spooked by a report in the Wall Street Journal that suggested that European banks' stress tests released in July had gone light on some institutions, with a number of banks excluding parts of their portfolios from disclosure.

The mood also hit stock exchanges, with European banking stocks declining 1.4 percent in the day and global markets closing lower.

Late Tuesday, the chief of the Eurogroup of EU member states, the 16 countries that use the euro currency, tried to calm the waters.

After a meeting of Eurogroup finance ministers, Jean-Claude Juncker told reporters that Greece was sticking to its austerity plans and that he has confidence in the Irish administration to handle the current difficulties.

"We are happy that Greece is on a good track," he said, adding: "We were listening carefully to our Irish colleague and all of us are convinced the government will be able to manage the situation."

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MEPs criticised the EU deal on the budget and recovery package clinched by leaders after five days of gruelling talks, saying it is not enough "future-oriented", and cuts too deeply into EU policies, including health, innovation, defence and humanitarian aid

EU Parliament gears up for fight on budget deal

European parliament president David Sassoli said certain corrections will have to be made in the budget, citing research and the Erasmus program for students, calling the cuts "unjustified".

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EU summit enters fourth day with recovery deadlocked

After bilateral negotiations continued all Sunday night, mostly to try to convince the 'Frugal Four' to move their red lines, European Council president Charles Michel is expected to table a new proposal on Monday afternoon with €390bn in grants.

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