Good morning and welcome to today\u2019s foreign exchange market commentary on Monday the 5th of December.<\/p>\n
A solution to the European credit crisis is finally starting to take shape. As talks about possible solutions do the rounds for the n-th time, don\u2019t be surprised if the hullabaloo ends in nothing. We have seen this for the umpteenth time in the last twelve months, we may see it again. The reason for the market\u2019s new found hope is not totally misplaced though. Apparently German Chancellor Angela Merkel has mellowed down and the European Central Bank has softened its stand, as if on a cue from her. The ECB is likely to cut rates again and infuse some liquidity in the region\u2019s troubled banking system; they may also accelerate government debt purchases in the region. Instead of printing money, the ECB may borrow from the stronger economies of the eurozone and lend it to the International Monetary Fund, which in-turn will lend it to Italy and Spain.<\/p>\n
There is however, a small hitch. Ms Merkel and the ECB want to implement tougher fiscal disciplines through a treaty for the region\u2019s erring economies. The European Commission in Brussels should have the powers to override national budgets and the European Court of Justice should have the authority to penalise governments that fail to manage budget deficits. Not that the talk of \u2018more Europe\u2019 by Ms Merkel is wrong. Failure by successive regimes to implement tighter fiscal policies \u2013 as practiced by Germany; has culminated in the present crisis. <\/p>\n
But the problem will be the apparent loss of sovereignty, a staple agenda for the region\u2019s right wing politicians. Even French President Nicholas Sarkozy \u2013 who has been backing Merkel all along, found the new treaty difficult to stomach. The opposition socialists, who look likely to replace Sarkozy in May elections, have already dubbed the plan as \u2018Austerity Treaty.\u2019<\/p>\n
Merkel\u2019s idea, though not a bad idea, would have been better served if she insisted on disciplining through markets, rather than rules. Not that the struggling economies will not sign the treaty or torpedo Berlin\u2019s plan. The fear-of-failure of the euro is so high among the countries, that pretty much all political parties are expected to fall in line when the moment comes. Nonetheless, marriages based on fear may not be sustainable in the long run.<\/p>\n
GBP\/EURO \u2013 1.1632
\nGBP\/US$ \u2013 1.5651
\nGBP\/CHF \u2013 1.4396
\nGBP\/CAN$ – 1.5907
\nGBP\/AUS$ \u2013 1.5326
\nGBP\/ZAR \u2013 12.5180
\nGBP\/JPY \u2013 121.95
\nGBP\/HKD \u2013 12.1621
\nGBP\/NZD \u2013 2.0028
\nGBP\/SEK \u2013 10.5348<\/p>\n