Translated material
Outstanding debts
As the FT Deutschland newspaper wrote, ECB board member Jurgen Stark told members of the CDU party that German savings banks that did not participate in European stress tests, as well as the state-owned Landesbanks, are exposed to significant risks. Earlier this week, the Association of German Banks said the country's 10 largest banks could require around 105 billion euros in fresh capital.
Concerns about the state of Europe's largest economy led to a decline in the value of German bonds. Statistics released this week showed industrial production in Germany rose less than expected and exports fell unexpectedly.
In addition, according to the Financial Times, the ECB has significantly increased the volume of purchases of bonds of a number of eurozone countries, in particular Greece, Portugal and Ireland, spending about 300 million euros for these purposes in recent days. This is a record volume since the beginning of July.
As noted in the monthly report of the European Central Bank published yesterday, eurozone countries must be prepared to take new measures to reduce their budget deficits if economic growth is less than predicted. “The 16 countries may have to quickly take additional measures to consolidate their budgets so that they correspond to the established level of deficit in the European Union,” the document notes. As is known, this level is 3% of the country's GDP. Ireland has the largest EU deficit at 14.3% of GDP, followed by Greece at 13.6% of GDP (the country aims to reduce this figure to 8.1% this year and reach EU standards in 2014). According to the forecasts of the European Commission, the total budget deficit of the countries of the region this year will increase to 6.6 from 6.3% of GDP a year earlier.
The ECB believes that thanks to good growth of the eurozone economy in the first half of the year and continued recovery, countries will be able to reduce their budget deficits. However, Ireland, for example, which has a large budget deficit combined with a high level of debt, will not be able to reduce the size of the deficit to the established level by 2014, the regulator's report notes. Recently, the Irish authorities decided to split the country's largest banking group, Anglo Irish, which suffered due to the global crisis. The bank will be split into two parts: one to hold customer deposits and the other to manage bad loans. Both structures will not be able to access additional loans. "Investor concerns have increased somewhat following the Anglo Irish news and the decline in German bonds on the back of ECB comments," RIA Capital Markets bond strategist Nick Stamenkovic told Reuters.
In addition, the Organization for Economic Co-operation and Development reported that the global economic recovery will be slower than expected. This also increased the players' pessimism. “The debt risk theme is back, but it never really went away from a long-term perspective,” chief economist at FXPro Financial Services Ltd. told Bloomberg. Simon Smith. “The foreign exchange market is returning to the July fears, and this has a negative impact on the euro.”
The Bank of England yesterday kept the base rate at a minimum level of 0.5% per annum. This rate has been in place for 18 months. In addition, the regulator decided to leave in place a program worth 200 billion pounds, or $308 billion, aimed at purchasing bonds to ensure liquidity in the financial system. Britain is forced to maintain an accommodative monetary policy, despite persistent signs of rising inflation.