At 07.00 this morning (23rd July) the euro hit a new current low against the US dollar.
It fell to a bid price of 1.2091, below the 1.21 mark.
This follows a short and modest recovery last week – to a high of 1.2306 at 09.00 on 19th July.
In the light of this pattern, it is particularly interesting to re-read Alistair Strang’s piece here, published on 13th July: Alistair Strang: euro and US dollar revisited.
This is evidence that the continuing troubles in the euro zone, with the crisis in Spain now appearing to be accelerating, leave the markets unconvinced that the eurozone states are on charge of events.
Spain;s sovereign debt borrowing rate yesterday (22nd July) jumped to 7.55%, with 7% regarded as the point beyond which recovery is not achievable because of the increasing dimension of sovereign debt with that rate of interest on borrowing to be repaid.
The heart of the problem is the debt situation faced by Spain’s regional governments which now look to be unable to continue without a bailout form the national government- which it is unable to provide. This would see the country go for the full bail out the eurozone had been hoping to be able to avoid .
The attempt to avoid this was the reason for the recent arrangement for the European Financial Stability Facility (EFSF) to lend directly to Spain’s troubled banks , rather than the previous system of lending to a country’s banks through its government. This particular passage of financial aid adds to the sovereign debt burden, spooks the markets and drives up the bond yield – or the interest rates paid on state borrowing.
At the moment two of Spain’s 17 regional governments, Valencia and Murcia are seeking help from the national government. Valencia asked for a loan on Friday and Murcia has said it is about to do so.
On Friday, at the point where Valencia’s request became known, Spain’s sovereign debt bond yield was already above the danger limit, at 7.28%. The news from the regions is what has now hiked it higher.
A sharp indicator of the spectrum of market confidence in eurozone member states is that Germany’s 10-year bond yield has fallen to 1.13%, creating a record gap between the yield on German and Spanish bonds.
And the implications for Argyll are?
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…the same as the implications for the rest of Scotland and the UK. We are prey to this situation.
This is an issue we all need to get a grip on understanding because there’s serious stuff coming down the pipeline.The euro is unlikely unlikely to survive and that will bring an aftermath which we can steer to a degree if we grasp the issues and act in time.
Either we understand it or we rely on what politicians tell us – in which case we’re vulnerable to what we’re told – which will be spun by whoever they are.
We don’t either believe in or encourage abdication of responsibility.
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Lowry – implications?
Tourism effectively stops from outside the UK whilst the three ‘free market’ currencies adjust themselves. Stock markets have the potential of crashing, oddly fuel prices could drop like a stone, world depression and generally, a pretty grim time as exports world wide grind to a halt.
I suspect Argyll might feel the implications. This sort of thing also tends to precurse conflict between nations.
Sorry – grumpy mood here.
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Thanks – I genuinely wanted to put the interesting information provided in the article into more local context. I too believe it may have huge significance but can’t imagine how wide the impact might be felt. I often wonder if some folk feel that we are far removed from European issues.
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