Forex Blog

October 8, 2013

Sarkozy Could do a Berlusconi And Have a Triumphant Return to Politics

When Carla Bruni-Sarkozy was asked by CNBC about the corruption charges against her husband, former French President Nicolas Sarkozy, she replied: “I trust the truth. So I feel like the truth is going to come out.”

In the end, French investigators abandoned their inquiry into whether Sarkozy took advantage of elderly L’Oreal heiress Liliane Bettencourt in order to garner funds for his UMP party in the buildup to last year’s presidential election.

While questions may still remain about Sarkozy’s conduct, the end of the inquiry allows him more access to the public stage, from which he has remained firmly removed since his election loss to François Hollande.

Sarkozy is still incredibly popular within his party: 62 percent of conservative UMP voters want him to run for the presidency in 2017, according to a September Ifop poll.

However, he still faces questioning regarding the “Karachi Affair,” yet another corruption case, this one linked to arms sales and a bombing in Pakistan in 2002.

via CNBC

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This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

May 23, 2012

Stage set for Hollande-Merkel showdown

European leaders will try to breathe life into their stricken economies at a summit over dinner on Wednesday, but disagreement over a plan for mutual bond issuance and other measures to alleviate two years of debt turmoil has already been laid bare.

For the first time in more than two years of debt-crisis meetings, the leaders of France and Germany have not huddled beforehand to agree positions, marking a significant shift in the Franco-German axis which has traditionally driven European policymaking.

Instead, new French President Francois Hollande will meet Spanish Prime Minister Mariano Rajoy in Paris to discuss policy, before the pair travel to Brussels for the 1800 GMT summit, where minds will be focused by the prospect of Greece exiting the currency area.

Germany’s Bundesbank said the situation in Greece was “extremely worrying” and it was jeopardizing any further financial aid by threatening not to implement reforms agreed as part of its two bailouts.

It said a euro exit would pose “considerable but manageable” challenges for its European partners.

Despite fears Greeks could open the exit door if they vote for anti-bailout parties at a June 17 election, Spain, where the economy is in recession and the banking system is in need of restructuring, is at the frontline of the crisis, with concerns growing that it too could need bailing out.

Hollande’s election victory has significantly changed the terms of the debate in Europe, with his call for greater emphasis on growth rather than debt-cutting now a rallying cry for other leaders.

That has set up a showdown with German Chancellor Angela Merkel, who supports growth but whose primary objective is budget austerity and structural reform. While she and former French president Nicolas Sarkozy did not always see eye-to-eye, in Hollande she is faced by someone with a different vision.

Reuters

May 6, 2012

Hollande Defeats Sarkozy

Hollande defeated French President Nicolas Sarkozy as voters handed control of the second-biggest European economy to the Socialists for the first time in 17 years.

The 57-year-old Hollande got about 52 percent against about 48 percent for Sarkozy, according to estimates by pollsters CSA and Harris Interactive. The campaign isn’t over; France elects its lower house of parliament in five weeks.

The challenger inherits an economy that is barely growing, with jobless claims at their highest in 12 years and a rising debt load that makes France vulnerable to the financial crisis that has rocked the euro region the past two years. Sarkozy became the ninth euro leader to fall in that time and the first French president in 30 years to fail to win re-election.

“Hollande’s bet was that rejection of Nicolas Sarkozy was enough to get him elected,” Dominique Reynie, senior researcher at Paris’s Institute of Political Studies, said before the vote. “The message was that if you don’t like Sarkozy then I’m your best bet.”

Sarkozy’s departure may sharpen tensions with key allies as Hollande has advocated a more aggressive European Central Bank role in spurring growth — a measure opposed by Germany — and an accelerated withdrawal from Afghanistan.

Bloomberg

February 6, 2012

Eurozone Recession Could Cut China’s Growth by 50%

The International Monetary Fund (IMF) said today that a recession in the Eurozone would likely reduce China’s actual growth by about 50 percent of the current projection. That would place China’s growth for 2012 at roughly 4 percent should the Eurozone crisis devolve into a recession.

It is estimated that China needs to maintain yearly expansion in the range of 8 to 10 percent to meet the needs of its emerging workforce. While growth of this magnitude would result in crushing inflation in most economies, China has sufficient capacity to absorb this rate of growth.

This is due to the migration of China’s rural population to the fast-expanding rural centers in search of work. In fact, it was only in this past year that, for the first time in the nation’s long history, China’s urban residents finally outnumbered the rural population.

Still, this is not to say that inflation has not been a concern. In 2011, China’s economy grew by 9.2 percent even after the government acted to ease price inflation. Food staples in particular rose sharply in the past year far outpacing the rate of wage increases. Property values have also climbed forcing the government to implement a series of measures to curb speculation.

Greece Moves Closer to Default

Underscoring today’s IMF’s warning is the latest news indicating that Greece has failed to come to terms with European officials on the implementation of a second emergency funding package. Several deadlines have been missed to reach an agreement but time is becoming an ever-greater concern. Greece has a 14.4 billion euro ($10.9 billion) bond due on March 20th and time is running out to get the funding in place and prevent a default.

The failure to agree on a new debt deal is being blamed on Greece’s inability to get the leaders of the three main political parties to consent to acceptable terms. Still, progress has been made in some areas; the Greek leaders have tentatively agreed to spending cuts equal to 1.5 percent of the countries Gross Domestic Product.
Greece’s hesitance is understandable given the degree of public opposition the proposed spending cuts. The country’s largest public sector unions have already threatened to impose a nation-wide strike expected to bring the country to a virtual stand-still later this week.

Regardless of the public hostility, European leaders are clearly losing patience with the Greek government’s continued foot-dragging. French President Nicolas Sarkozy was quoted as saying that European governments “want this accord” at a press conference in Paris earlier today.

“Greece’s leader have made commitments and they must respect them scrupulously,” warned Sarkozy. “Europe is a place where everyone has their rights and duties. Time is running out, it needs to be concluded, it needs to be signed.”

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December 9, 2011

How Much Longer Can Europe Kick the Can Down the Road?

By Paul Quintaro
Benzinga Staff Writer

The European Summit—which had been anticipated all week—concluded early Friday.

Given expectations, the results seemed to be underwhelming. Yet, US equity futures were trading up Friday morning, perhaps evidence of the fact that investors had bought into the deal enough so as to calm concerns.

On Monday, France’s Nicolas Sarkozy and Germany’s Angela Merkel drafted proposals that would form the basis of the summit. Merkel and Sarkozy (dubbed ‘Merkozy’ in the press) were to set to unveil measures that would limit spending in profligate countries in the Eurozone and set strict limits to punish violators.

Although the summit may have been seen to be an effort to save the euro currency, all 27 members of the European Union (EU) participated, including the 10 who do not officially use the euro.

Given the events of the summit, further agreements over the fate of the euro may be decided solely by the members actually using the currency.

During the summit, the UK’s Prime Minister David Cameron clashed with “Merkozy,” asking for concessions that the European diplomats were unable to agree to.

Those expecting Friday’s summit to produce a new treaty for the Eurozone may have been disappointed. Rather, what came out of the summit is the same as what has come out of previous European summits—more promises and plans for the future.

Now, European officials will attempt to negotiate bilateral agreements between countries to alter the rules of their union. Although comments were made stating that Europe would do its best to continue to function as a unit of 27 member states, given the UK’s resistance, a “two-track” Europe may emerge from the crisis.

One thing helping to split the Eurozone may have been a proposed financial transactions tax. Given that the UK is home to the City of London, the resistance to any taxes on financial transactions would presumably be tremendous.

The EUR/USD pair traded lower on Friday, dropping below $1.332 price level.

As the summit failed to produce anything definitive, traders may be expecting the European Central Bank to step in with more bond purchase programs.

Yet, yesterday, the ECB appeared to squash that theory, when the ECB’s Mario Draghi made comments in a press conference following the ECB’s rate decision.

Draghi stated that current EU treaties prevented the ECB from monetizing debt (purchasing bonds of indebted countries to pay for their governments’ spending). Thus, expectations of further bond purchases may be unrealistic.

While Friday’s summit failed to produce anything truly definitive, the euro lives on. Yet, the question dominating the minds of investors may remain: how much longer can Europe kick the can down the road?

December 6, 2011

Service Sector Suffering Due to Dollar Weakness

By Paul Quintaro

The ISM Non-Manufacturing Composite for the month of November printed at 52.0 Monday, down from the prior reading of 52.9 and well below expectations of 53.8. The reading is a broad-based assessment of the state of the service sector in the US.

Of its subcategories, the reading for employment came in below 50—indicating a contraction. This contrasts with last week’s employment data, which indicated that the unemployment rate in the US had fallen below 9%.

Of course, this data may fit in with the recent growth in manufacturing seen in the US, perhaps on account of currency fluctuations.

As the US dollar has weakened against other currencies, exports in the US may have benefited while individuals’ consumption may have taken a hit. A weaker dollar means less purchasing power for US consumers, and therefore the money they have to spend on services may be restricted.

For its part, manufacturing has been seen to be enjoying somewhat of resurgence, as US car manufacturers have demonstrated new life in recent improving sales figures.

The dollar index traded down earlier Monday, dropping roughly 0.5%. The primary cause of the shift in the index may have been a strengthening of the euro against the dollar, as the EUR/USD pair moved up nearly 0.60%.
Forex traders may have had their concerns alleviated about a possible euro collapse.

In recent months, more and more concern has built up over the fate of the euro. In a joint press conference on Monday, Germany and France’s leaders—Angela Merkel and Nicolas Sarkozy—came together to state that they had come to an agreement on a new treaty for the European Union.

That new agreement would not include Eurobonds, but would include measures to ensure that member states kept their budgets in check. It could also make changes that would allow the European Central Bank to purchase the bonds of indebted member states.
Of course, in a somewhat ironic fashion, a stronger euro may prove to be fatal for the Eurozone.

A strengthening euro means that the debt burden of member states is made heavier. As the member states are struggling under their current debt burdens, a stronger euro would only make their situation worse, as well-known economist Nouriel Roubini noted last week.

Still, if the ECB is now going to purchase bonds, it may drive the euro lower. With more euros in circulation, the value of the euro may be made weaker.
Other central bankers could resist euro depreciation. The Swiss National Bank and Bank of Japan have already taken steps earlier in the year to drive down the value of their currencies, as investors may have shifted their holdings to shield themselves from a loss.

It will be interesting to see where the euro trades from here. Should a new agreement be formed, two conflicting forces—weakening due to bond purchases, but also strengthening due to relief about the potential of a collapse—could whipsaw the euro. If a new agreement cannot be formed, and the situation continues to deteriorate, the euro could continue to trade lower.

October 21, 2011

Cracks Appear in Eurozone Bailout Solidarity

France and Germany appear to be at odds over how to best deal with the European debt crisis. French President Nicolas Sarkozy wants to see the European Central Bank provide itself provide more liquidity, while a majority of other EU particpants – including Germany – want to expand the European Financial Stability Fund to cover sovereign debt shortfalls.

“The path is closed for using the ECB to ease liquidity problems,” German Chancellor Angela Merkel told her conservative parliamentary caucus in Berlin, according to participants at a closed-door meeting.

Source: Reuters

July 21, 2011

ECB Appears Willing to Accept “Temporary” Greek Default

The European Central Bank (ECB) said today that it may be necessary to allow Greece to descend into a temporary default in response to the Greek sovereign debt crisis. Sources say that German Chancellor Angela Merkel and French President Nicolas Sarkozy have agreed in principle that private investors should be forced to absorb part of the cost of a second bailout package for Greece.

European leaders are currently attending a summit where it is hoped that lawmakers can stop the debt contagion already infecting several countries from spreading even wider throughout the region.

Banking Tax Ruled Out

French officials have argued in favor of a bank transaction tax that would raise funds that could then be distributed as needed. Germany has opposed this move and with today’s earlier announcement that the two countries have reached common ground, it appears that a new bank tax has been ruled out.

“You should assume that there will not be a banking tax,” one source told Reuters news.

Four Competing Approaches

During the summit it is expected participants will debate four possible scenarios for saving Greece – Chancellor Merkel has cautioned however, that a definitive approach may not be reached prior to the close of the summit. The four possible solutions are:

1. Rollover of Greek bonds as they mature
2. Swap bonds for debt with longer maturity dates
3. Tax on European banks
4. Buyback of Greek debt at discount to face price

Items 1 and 2 are similar and variants of a “re-profiling” of the country’s debt. Either approach is likely to elicit a “default” status from the ratings agency. The third item – a new tax on the banking system – appears to be off the table with latest comments from the summit.

This leaves the idea of buying back bonds at a discounted price. Again, this would likely evoke a “default” status as investors will likely recoup some of their investment, but they will definitely suffer a haircut. It is still a matter of conjecture how deep this haircut might be.

For its part, Greece will be free from some of its debt and will receive “new” money with much of the risk being transferred to the discounted bond holders including presumably, the ECB.

ECB Appears Willing to Accept Temporary Greek Default

The European Central Bank (ECB) said today that it may be necessary to allow Greece to descend into a temporary default in response to the Greek sovereign debt crisis. Sources say that German Chancellor Angela Merkel and French President Nicolas Sarkozy have agreed in principle that private investors should be forced to absorb part of the cost of a second bailout package for Greece.

European leaders are currently attending a summit where it is hoped that lawmakers can stop the debt contagion already infecting several countries from spreading even wider throughout the region.

Banking Tax Ruled Out

French officials have argued in favor of a bank transaction tax that would raise funds that could then be distributed as needed. Germany has opposed this move and with today’s earlier announcement that the two countries have reached common ground, it appears that a new bank tax has been ruled out.

“You should assume that there will not be a banking tax,” one source told Reuters news.

Four Competing Approaches

During the summit it is expected participants will debate four possible scenarios for saving Greece – Chancellor Merkel has cautioned however, that a definitive approach may not be reached prior to the close of the summit. The four possible solutions are:

1. Rollover of Greek bonds as they mature
2. Swap bonds for debt with longer maturity dates
3. Tax on European banks
4. Buyback of Greek debt at discount to face price

Items 1 and 2 are similar and variants of a “re-profiling” of the country’s debt. Either approach is likely to elicit a “default” status from the ratings agency. The third item – a new tax on the banking system – appears to be off the table with latest comments from the summit.

This leaves the idea of buying back bonds at a discounted price. Again, this would likely evoke a “default” status as investors will likely recoup some of their investment, but they will definitely suffer a haircut. It is still a matter of conjecture how deep this haircut might be.

For its part, Greece will be free from some of its debt and will receive “new” money with much of the risk being transferred to the discounted bond holders including presumably, the ECB.

December 10, 2010

France, Germany Pledge to Support Euro

After meeting to discuss the Euro ahead of a European Union meeting next week, French President Nicolas Sarkozy said that both he and German Chancellor Angela Merkel will “defend the euro, because the euro is Europe”.

Sarkozy also said that he and Merkel do not support the scheme to buy pan-European bonds as a way to provide cash to troubled European economies. The approach favored by by Sarkozy and Merkel is to first bring in fiscal restraints to address out of control spending.

Source: The Canadian Press

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