German Banks and European Debt - FX Solutions Forex Market News

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Date: Thu, 29 Sep 2011 Time: 3:42 AM
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Joseph Trevisani, Chief Market Analyst at FX Solutions (http://www.fxsolutions.com/), provides Forex traders with an overview of currency market activity and news on 12th September 2011, including news around German banks and European debt.

"German officials were said to be readying a plan to support the nation's banks in the event of a Greek default on its sovereign debt, perhaps as early as this weekend. A Greek default would lead to a dramatic worsening of the debt crisis which has plagued the continent for two years.

The euro fell to 1.3627, its weakest against the US Dollar in more than six months, before recovering slightly to 1.3660--a more than 2.2% drop to the low. The united currency lost 2.5% versus the Japanese Yen, touching 105.27, the weakest in over a decade.

In a sign of policy turmoil at the European Central Bank (ECB) Juergen Stark, the well known German chief economist of the bank resigned from the executive board. Mr. Stark had been an adamant opponent of the bank's policy of buying debt of credit threatened EMU members. The ECB first employed this policy to support the finances of Greece, Ireland and Portugal but began buying the issuance of Italy and Spain last month, the third and fourth largest economies in the monetary union.

Yields on German and American government debt plunged as investors sought the safety of the one of the world's strongest economies and it's largest. The return on the German 10 year bund slid to 1.77% the lowest on record. Likewise the generic 10-year Treasury reached 1.8942%, the lowest yield on record for this compilation which goes back almost 50 years to January 1962

Banks, insurers and other holders of Greek debt face potential 50% losses if the next disbursement of the bailout package is withheld. Greece has not met the deficit reduction terms of the original bailout.

The Group of Seven finance heads are meeting this weekend in Marseille, France. But the likelihood that the group will be able to do anything except issue an official admonition for the Europeans to solve the crisis is practically nil. The Europeans "need to do whatever they can to calm these pressures. They have to have to political will", US Treasury Secretary told Bloomberg Television."

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