By: Mike Campbell
Market sentiment in Europe was a touch more bullish yesterday, with all of the markets making some headway after the sharp falls earlier in the week. The Euro has also reversed some of its recent losses and made ground against the Dollar. So what has changed? Well, the answer is that nothing has changed. The Greeks are still in a financial mess with a major debt problem that is proving hard to finance and a deficit which is more than four times its permitted level under Eurozone rules. The safety net that was put in place weeks ago by the Eurozone/IMF group for the Greeks should it prove impossible for them to service their debt through the markets has been called upon; now the devil is in the detail. Clearly, the Germans will sign up to the provision of this facility – it is not a hand-out nor is it free money: the Greeks can call upon a loan from fellow Eurozone members and the IMF and it will need to be repaid (credibly) at a level of interest and terms which are the subject of the current negotiation. The markets are acting in response to the belief that a deal will be reached and soon. Decisive action by the Eurozone leaders (France and Germany) will head off speculative market and currency moves against Portugal and Spain; the next two most likely targets on the list. It is pretty certain that the Euro is here to stay and that it will be a strong currency, but some Forex speculators could make a killing betting on a falling Euro that will subsequently recover. Such a move would likely harm the markets and slow the weak global recovery to a crawl, if not send it back into recession. The details of the deal should have been sorted out weeks ago and made public.