A visiting Martian might well wonder why, with all the euro’s problems, it is unchanged from a month ago against sterling and the US dollar. And a good question it would be too.
Greece has at last got itself a pro-euro, pro-bailout, pro-austerity coalition government but tax revenues are going down while the spending cuts and privatisations are not happening. Spain and Italy are having to pay 7% and 6% to fund themselves with ten-year money while Germany has investors throwing cash at it for the same period at 1.5% and Britain can borrow at 1.7%. Spain has bowed to the inevitable and asked for a bailout of up to €100bn in order to keep the country’s banks afloat. Cyprus wants one as well but has not yet done the sums and the amount remains uncertain. As unions go, the European one doesn’t look particularly unified.
But investors have issues with sterling too. In particular they are unhappy with the lack of growth in Britain and they fear another round of quantitative easing – printing money – from the Bank of England. They are not even particularly happy with the dollar. Growth and job-creation have both slowed in the States. There is also concern – in the background so far but gaining in importance – that November’s election could leave the country with a budget disagreement between Congress and the White House that would trigger automatic spending cuts, tipping the economy off a “fiscal cliff” and back into recession.
None of it looks great. Investors are hoping against hope that the upcoming EU summit meeting will produce the all-embracing solution to the Euroland crisis that its 29 predecessors failed to deliver. Seven days before the meeting the Italian prime minister said there was “a week to save the euro”. If his assessment was correct, time is running.