High hopes are being placed on the EU leaders to find a solution to the euro debt crisis. Before the start of the summit on Friday, German Chancellor Angela Merkel and French President Nicolas Sarkozy agreed on a deal which envisages restrictions on the ability of individual eurozone countries to run large fiscal deficits.
Agreement was also reached on bringing forward to next year, from 2013, the setting-up of the European Stability Mechanism (ESM). The ESM will have the objective of bailing out countries in distress, such as Italy and Spain.
During the meeting, still in progress at the time of writing of this review, EU leaders agreed to make bilateral loans to the International Monetary Fund (IMF) to the tune of €200 billion. The idea is that the IMF will use these funds to assist countries that find difficulties to raise capital on the international bond markets.
Earlier in the week, the European Central Bank (ECB) delivered a multitude of new unconventional measures in addition to the anticipated 0.25% reduction in its main refinancing rate. These measures include longer maturity periods, easier access to lending and lowering of the reserve rate requirement for banks.
However, the much-hoped-for signal that it will intervene by buying sovereign bonds of distressed but solvent governments, such as Italian bonds, was not among them.
Given the ECB’s unlimited firepower, such a move would have put a cap on the cost of borrowing of these countries, thereby erecting a firewall around them. Germany, the EU’s paymaster, opposes such measure for fears of stoking inflation.
In the US, the employment report indicated unemployment dropped from nine per cent in October to 8.6 per cent in November, indicating that the US economy is managing to create jobs in these challenging times. This is the lowest unemployment rate since March 2009.
The report showed that non-farm payrolls rose by 120,000, after a revised 100,000 rise in October that was more than initially estimated.
According to a Bloomberg News survey the median estimate for the payroll increase indicated a gain of 125,000 jobs.
This article was compiled by Bank of Valletta plc for general information purposes only.