Good morning. The global markets are in a state of suspended animation, waiting for the outcome of Sunday\u2019s summit meeting. Expectations however, have been moderated as EU leaders have made their differences on key issues known. The final size of the EFSF bail-out fund and how it will be leveraged remains unresolved. One thing becomes reasonably clear though, the \u2018haircut\u2019 loss of 21% on Greek bonds agreed before, should go up. The Germans are proposing up-to 60% (sorry for the reminder!), while the French are opposed given the high exposure their banks have to Greece. Sunday\u2019s crucial meeting has been extended to Wednesday; that should let Angela Merkel gain approval from a Bundestag budgetary committee.<\/p>\n
The Greek government managed to pass the latest round of austerity measure amid riots in Athens and nationwide civil disobedience. Painful structural adjustment being witnessed by an inefficient economy that artificially inflated the country\u2019s expenses without bothering to improve its income, borrowing like there\u2019s no tomorrow. <\/p>\n
Britain has reasons to be worried if the proposed \u20ac2 trillion EFSF expansion takes place. The EU may witness strong inflation, and Britain being the EU\u2019s biggest trading partner, will import inflation form the eurozone. CPI data released two days back already pegs inflation at 5.2% in Britain, things may spiral out of control since the BoE\u2019s latest quantitative easing announcement is expected to aggravate the situation further in the near-term. <\/p>\n
One of the ex-board member\u2019s of the European Central Bank, Otmar Issing, warned that giving banking license to European Financial Stability Facility (EFSF) to participate in refinancing activity will harm price stability in the region. <\/p>\n
\u201cThe Treaty governing the monetary union forbids monetary financing of the public sector. Whoever mulls lifting this ban opens the gates of states, of politics, to the banknote printing press. One look at the history of money \u2013 especially German history \u2013 is enough to measure the unavoidable consequence,\u201d he observed in an article in the German daily Handelsblatt. <\/p>\n
In an unrelated development, French Prime Minister Francois Fillon said the 17 member EU is \u201cresolutely\u201d moving towards an economic government while addressing businessmen in Seoul. Classic example of locking the door after the horse has bolted! In hind sight, a common currency within a very disparate group of economies probably wasn\u2019t the best idea in the first place. The British government and the BoE deserve compliments for showing the wisdom of not giving up on the country\u2019s sovereign currency in favour of the euro.<\/p>\n
GBP\/EURO \u2013 1.1459
\nGBP\/US$ \u2013 1.5771
\nGBP\/CHF \u2013 1.4029
\nGBP\/CAN$ – 1.6054
\nGBP\/AUS$ \u2013 1.5561
\nGBP\/ZAR \u2013 12.8942
\nGBP\/JPY \u2013 121.15
\nGBP\/HKD \u2013 12.2819
\nGBP\/NZD \u2013 1.9934
\nGBP\/SEK \u2013 10.4523<\/p>\n