from Jeremy Gaunt:

Why is the euro still strong?

November 10, 2011

One of the more bizarre aspects of the euro zone crisis is that the currency in question -- the euro -- has actually not had that bad a year, certainly against the dollar. Even with Greece on the brink and Italy sending ripples of fear across financial markets, the single currency is still up  1.4 percent against the greenback for the year to date.

from Global Investing:

Are global investors slow to move on euro break-up risk?

November 9, 2011

No longer an idle "what if" game, investors are actively debating the chance of a breakup of the euro as a creditor strike  in the zone's largest government bond market sends  Italian debt yields into the stratosphere -- or at least beyond the circa 7% levels where government funding is seen as sustainable over time.  Emergency funding for Italy, along the lines of bailouts for Greece, Ireland and Portugal over the past two years, may now be needed but no one's sure there's enough money available -- in large part due to Germany's refusal to contemplate either a bigger bailout fund or open-ended debt purchases from the European Central Bank as a lender of last resort.

from Global Investing:

Euro exit-ology

November 8, 2011

Whether or not it's likely or even a good idea, talk of Greece leaving the euro is no longer taboo in either financial or political circles.  What is more, anxiety over the future of the  single currency has reached such a pitch since the infection of the giant Italian bond market that there are many investors talking openly of an unraveling of the entire bloc. But against such an amplified "tail risk",  it's remarkable how stable world financial markets have been over the past few turbulent weeks -- at least outside the ailing sovereign debt markets in question.

from Jeremy Gaunt:

Democracy and Chaos are both Greek

November 1, 2011

It seems as if almost everyone was surprised by Prime Minister George Papandreou's decision to hold a referendum on the euro zone's bailout package for his country. At the very least, it can probably be said that he is weary of being hammered from all sides --  his own party, the opposition, the people on the street, Germany, the tabloid press, you name it.

Europe sobers up after Italian auction

October 28, 2011

After a hopeful couple of weeks and the ”euphoria” caused by an agreement to tackle the euro zone debt crisis, financial markets got a reality check from Italy’s sale of 7.94 billion euros of government bonds. The debt met lower demand than at previous auctions, forcing the country to pay the highest premium since joining the single currency to sell 10-year debt.

from Global Investing:

Trash heap for sovereign CDS?

October 27, 2011

For all the ifs and buts about the latest euro rescue agreement, one of its most profound market legacies may be to sound the death knell for sovereign credit default swaps -- at least those covering richer developed economies. In short, the agreement reached in Brussels last night outlined a haircut on Greek government bonds of some 50 percent as a way to keep the country's debt mountain sustainable over time. But anyone who had bought default insurance on the debt in the form of CDS would not get compensated as long as the "restructuring" was voluntary, or so says a top lawyer for the International Swaps and Derivatives Association -- the arbiter of CDS contracts.

New twist in Hungary’s Swiss debt saga. Banks beware.

September 9, 2011

A fresh twist in Hungary’s Swiss franc debt saga. The ruling party, Fidesz, is proposing to offer mortgage holders the opportunity to repay their franc-denominated loans in one fell swoop at an exchange rate to be  fixed well below the market rate.  This is a deviation from the existing plan, agreed in June, which allows households to repay mortgage installments at a fixed rate of 180 forints per Swiss franc (well below the current 230 rate). Households would repay the difference, with interest, after 2015.

Hungary’s central bank in policy bind

August 17, 2011

Pity Hungary’s central bank. If ever there was a country that needed an interest rate cut, here it is.  With the euro zone in the doldrums, the Hungarian economy is taking a big hit, with April-June growth coming in at a measly 1.5 percent on an annual basis, well below expectations. Quarter-on-quarter growth was in fact zero. Data last week showed annual inflation at two-year lows last month. Despite a cut to personal income tax rates this year, household consumption is stagnating. Unemployment is running at 11 percent. 

Greek firewall looks porous

July 25, 2011

The second Greek bailout was aimed at ring-fencing euro zone contagion, but could unleash it instead.

from Global Investing:

Jean-Claude Trichet, EM c.bankers’ new friend

February 2, 2011

What a friend emerging central bankers have in Jean-Claude Trichet. Last month the ECB boss stopped euro bears in their tracks by unexpectedly signalling concern over inflation in the euro zone. Since then the euro has pushed steadily higher  -- against the dollar of course, but also against emerging currencies. The bet now is that interest rates -- and the yield on euro investments -- will start rising some time this year, possibly as early as this summer.