Category: UK & Europe

As of the end of March 2011, French banks held $410 billion of Italian debt, by virtue of their holdings of Italian government bonds and loans to the private sector, according to the Bank for International Settlement. They were also on the hook for $86 billion because of credit commitments, derivatives contracts and other loan guarantees in Italy.

The ability of the French financial system to weather an Italian storm is doubtful because French banks are less capitalized than their major European counterparts.

via Mon Dieu! French Banks Could Pull Down the Economy.

The deeper issue is that Italy is 20pc over-valued within EMU and is now trapped in very low growth and a stubborn current account deficit. This is a slow rot. It is directly linked to EMU membership.

Italy could have used the decade and half since Euroland’s currencies were locked together after Maastricht to free up labour markets and carry out the `micro’ reforms needed to make EMU viable. It did not do so. It is very late in the day now.

via Italy, EMU and the Evil Eye – Ambrose Evans-Pritchard Telegraph Blogs.

The Swiss National Bank could ease monetary policy further without having to resort to currency interventions to counter a soaring franc, Vice Chairman Thomas Jordan was quoted as saying on Thursday, as investors speculated over the bank’s next move.

The franc dropped 5 percent against the dollar and the euro after Jordan declined to rule out any measure that was compatible with independent monetary policy, including temporarily pegging the franc to the euro.

via UPDATE 4-Swiss eye more steps to quell franc rise | Reuters.

…… the SNB may slow appreciation but is unable to prevent it. Other central banks (e.g. BOJ) have tried and failed.

The Swiss Franc encountered resistance at $1.40 but weak retracement indicates an accelerating (exponential) up-trend. Breakout above $1.40 would test $1.50*.

* Target calculation: 1.40 + ( 1.40 – 1.30 ) = 1.50

The Euro continues in a bearish descending triangle against the dollar. Breakout below $1.40 would signal a decline to test support at $1.30*.

* Target calculation: 1.40 – ( 1.50 – 1.40 ) = 1.30

So the euro zone still doesn’t look like it has a coherent plan for bringing the crisis to an end, which at this late stage would require a massive increase in the funds available to the EFSF (European Financial Stability Facility) or a willingness to guarantee all euro-zone government bond issuance as a single bloc.

via Euro-Zone Leaders Need – WSJ.com.