Wednesday, May 23, 2012

More Euro Troubles

Stocks Fall as E.U. Leaders Gather in Brussels

PARIS — European stocks fell about 2 percent and the euro slipped on Wednesday, as European Union leaders began converging on Brussels for yet more talks on how to address the intensifying Greek crisis and the existential threat to the common currency.
The fear in the market is palpable, leading investors to move euros out of the struggling periphery countries and toward the central economies of Germany and France. In a debt auction Wednesday, Germany sold almost €4.6 billion, or $5.8 billion, of its two-year Schatz notes priced to yield 0.07 percent — the lowest ever; at that yield, investors are essentially handing their euros to Germany for safekeeping, expecting nothing in return.
“There’s a flight to safety inside the euro zone,” Steven Saywell, head of currency strategy for Europe at BNP Paribas in London, said. Beyond that, he added, investors are also buying bonds amid expectations that weakening economic data will soon lead the European Central Bank to cut interest rates again.
The leaders of all 27 E.U. member nations will be present at the early evening meeting, where Chancellor Angela Merkel of Germany and proponents of the austerity-first approach to addressing the crisis will hear proposals from the French president, François Hollande, of how economic growth might factor more into the equation. Mr. Hollande has suggested that euro member nations pool financial resources to make funds available for growth.
Officials are meeting at a time when the possibility of a Greek exit from the euro zone has become a real possibility, one to be discussed openly.
The German central bank, the Bundesbank, warned Wednesday that the Greek situation was “extremely worrying,” and that “Greece would have to bear the consequences” of its actions if refused to implement the agreed austerity measures. In such a situation, the bank said in its monthly report, the challenges for the euro zone and for Germany “would be considerable, but manageable given prudent crisis management.”
The Bundesbank warned against easing Greece’s bailout terms, saying that such a move “would damage confidence in all euro-area agreements and treaties and strongly weaken incentives for national reform and consolidation measures.”

The rest of the story can be found HERE

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