The end of 2010, including the rating agencies Fitch frequently, including the euro area “periphery” of Spain, Portugal, issued a downgrade warning, Belgium, Italy and even France also is listed as suspect.
This means that the sovereign debt crisis will continue to be staged in Europe in 2011.
Fitch said that, following Greece and Ireland, the EU may need to save more of the euro area member states.
Goldman Sachs Asset Management CEO Jim ONeill in a letter to clients, said euro zone countries and banks will be in early 2011 a new financing needs, it’s relatively quiet pre-Christmas market in 2011 may before the end of the first quarter, the new pressure will appear.
“The EU arrived in a domino effect difficult to reason that EU leaders failed to make enough bold policy response.” Chairman of the London and Cambridge Capital Markets, said David Marsh, told reporters.
Policy and market “Catch Me”
The market generally believes that Portugal will be the next country to seek help. The 10-year Treasury bill rate is currently 6.574 percent, well above the EU / IMF funds rate.
It is estimated that about Portugal in 2011 to raise 19 billion euros, and by June next year, so far, Portugal to be more than 120 billion euros to repay maturing debt, the stress is concentrated in the first half.
Spain, the euro zone’s fourth largest economy is also facing a crisis. Spain year Treasury rate to reach 5.5% this month, a new record high in 10 years. Rating agency Moody’s warned that, given the Spanish government bond ratings and lower 30 Spanish bank’s credit rating.
“I think more than 5% of Spain’s inability to support the annual interest rate financing, which will cause problems, but I am optimistic about yet.” UniCredit strategist Luca Cazzulani said.
Next April, July and October, there will be three batches of the Spanish government bonds due to be redeemed, each batch size of about 150 million euros.
Another risk is that by 2011, sovereign debt crisis will go beyond its original birthplace of “bungy four countries”. Belgium, Italy, the market recently have been classified as suspect. There are even expected to European institutions, the crisis spread to France lost “AAA” sovereign credit risk rating increased. Data show that the French 10-year Treasury credit default swaps (CDS) prices have risen twice as much.
Jim O’Neill said the EU and the IMF should be a joint relief mechanism to provide preventive lending in Spain, to meet their financing needs 12-18 months, “policy makers can respond to the market step by step approach through the reaction of 2010, I’m not sure this can work in 2011. “
Vicious circle
O’Neill believes that Portugal will be more difficult for aid, mainly due to loan terms. Spain has approved a broad program of economic reform and deficit reduction, compared to Portugal needs to make more structural reforms, and the face of protests to pressure those in power.
Frequent and large-scale demonstrations throughout Europe in 2010. December 15, the Greek capital Athens, tens of thousands of people in the procession, and clashed with police. The implementation of the EU to accept aid from the Greek financial reduction scheme, have occurred in 6 large-scale strike.
The risk of the spread of sovereign debt crises, the European countries have chosen to reduce the fiscal measures, including cutting public expenditure factor is usually to reduce the number or civil service wages, increase taxes. European unemployment has been high, measures will further inhibit the reduction of private consumption. On the other hand, almost all EU countries the end of this year’s economic stimulus plan. Superposition of two factors, slowing the pace of economic recovery in the EU.
According to the European Commission’s economic forecast by the end of November, the euro zone economic growth in 2010 will reach 1.7%. European Commission responsible for Economic and Monetary Affairs Committee, said Olli Rehn, the euro area has a solid economic recovery, the recovery are continuously expanding; but the European Commission also believe that eurozone growth will slow next year to 1.5%, national reduction plan is one of the main financial.
In addition, the euro-zone economic growth will increasingly show polarization in 2011. Germany will continue to drive economic growth in the euro area, growth is expected the next two years were 3.7% and 2.2%, but Greece, Ireland and the Spanish economy will shrink 4.2% this year, 0.2% and 0.2%, Portugal 1.3% economic growth this year, although , but next year will shrink, with negative growth (-1%).
Waiting for these countries in 2011 is to reduce expenditure and will be a vicious cycle of economic decline: cuts in spending will drag down economic growth, economic contraction is further to the efforts of these countries, fiscal consolidation to add difficulty.
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