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Cracks in EU deal unnerve global markets

Major indices in the US and Asia fell over-night, the 0.5%-0.8% loss coming as the Federal Reserve’s
chairman Ben Bernanke noted modest improvements in the US economy. Importantly, there was
no mention of further stimulus (“Quantitative Easing 3”) which, combined with highlighting the
susceptibility of the world’s largest economy to pressures in global financial markets, disappointed
markets.

Cracks also started to appear in the treaty changes agreed at the EU summit less than a week ago,
with the Financial Times reporting that politicians in the Czech Republic, the Netherlands and Ireland
are coming under pressure. At least four governments expressed concern over the precise legal
text of the deal, the framing of which could make changes difficult to pass through their national
parliaments and jeopardise their acceptance of the changes. The pressures have caused the euro to
fall to its lowest level against the dollar in almost a year.

As for eurozone bond auctions, which seem to be a daily occurrence of late, Italy and Germany were
in the limelight today with starkly contrasting results. Italy sought €3 billion worth of 5 year debt
which it sold at a eurozone record high of 6.47%, whilst Germany placed €4 billion of two year bonds
at an average yield of 0.29%. The latter shows that investors are prepared to accept negligible yields
to park their money with those borrowers perceived to be the safest.

The UK’s unemployment rate was announced by the Office for National Statistics today, which at
8.3% is the highest since 1994. The increase is partly a result of public sector job cuts but is also
being attributed to the eurozone debt turmoil.

The UK’s FTSE 100 lost 111 points to finish down 2.0% at 5378.8, led lower by miners and energy
companies. This was mirrored on indices across Europe with those in the US under pressure at the
time of writing.

This was posted in Bdaily's Members' News section by John Dance .