Market Overview

Spain Bailout Just a Question of When

The euro opened Tuesday morning with positive momentum at 1.2915. After another day of sour news coming out of Europe, many believe that Spain's bailout request is a question of, “When?” rather than “If”.

Bloomberg reported that unemployment data from the 17 euro zone countries shows an average 11.4 percent; no improvement over June or July rates. On the bottom half of the spectrum are countries like Spain and Greece, whose rates of 25.1 percent and 24.4 percent respectively, are significantly lower. The high unemployment in these countries is creating social unrest among nationals and making new austerity measures harder to swallow.

As protests in Spain, Portugal and Greece carry on, French nationals have taken to the streets as well in response to Prime Minister Jean-Marc Ayrault's 2013 budget plan. Steeper taxes for wealthy citizens and businesses make up the bulk of this plan, which has caused many of the nation's top earners to threaten with departure.

The European Central Bank meets Thursday to discuss cutting interest rates, though most speculate rates will remain unchanged for October. Monday, the Reserve Bank of Australia cut interest rates, leading to a massive decline in the Australian dollar. This decline may foreshadow a dip for the euro, should the ECB do the same.

A cut in interest rates could lead to Spain finally asking for its bailout, which would make the market happy, but not all of the euro zone partners. German authorities remain tense regarding a Spanish bailout and many believe that when the request is made it will be met with opposition. Though its recent banking audit and 2013 budget have helped its cause, German finance ministers question whether Spain is doing enough. Rightly so, on the heels of a Moody's statement reported by Bloomberg on Monday, which claimed “the recapitalization is credit positive, but may be insufficient.”

Posted-In: News Forex Global Economics Pre-Market Outlook Markets

 

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