The long awaited EU Summit produced a lot of hope for progress regarding Greece, Spain and a banking union. Expectations pushed EUR/USD higher within the range.
Headlines coming out of Brussels show that only little progress has been made. Currencies hardly moved so far. Will the pair slide lower?
A banking union, or more specifically a banking supervision mechanism, is necessary in order to provide funds from the bailout funds (EFSF and ESM) directly to banks, breaking the “vicious link” between banks and sovereigns, as stated in the June summit.
This was mostly made for Spain – the euro-zone’s fourth largest economy does not suffer from extremely high government debt, but rather from indebted banks. Transferring money to banks without enlarging the burden on the sovereign and its citizens seemed like a noble goal. The deadline was the end of the year.
And what was decided upon in Brussels? It’s already clear that no banking supervision will commence on January 1st. So when will it happen? France says it will happen in Q1 2013, but Germany lowers expectations and says it is very unlikely, and will only happen “in the course of 2013”.
Germany could push back this decision forever. It’s important to note that Germany, the Netherlands and Finland already talked about excluding bank aid from “legacy issues” – exactly Spain’s problems.
Spanish Bailout – Nothing to see here
In order to get the ECB’s money from the OMT, Spain needs to apply for a bailout request for itself – the sovereign. Conditions apply. Spanish PM Rajoy has been waiting to see those conditions.
In the meantime, his country had successful bond auctions. French president FranÃ§ios Hollande talked about giving Spain “good terms”. Nothing in that direction was heard from German Chancellor Angela Merkel.
A Spanish bailout request which markets long for did not happen in the summit and could further wait. “Spain made no demands, and nothing was demanded from Spain” – said the French president at the end of the summit.
Greece – Euro-zone membership depends on conditions
The same French president who wanted good terms for Spain also said that discussions on Greece were short, and that some details still needed to be worked on.
The next tranche of aid to Greece, worth 31.5 billion euros, still depends on Greece meeting the conditions. This view was shared also with Merkel. They also said that meeting the conditions was required in order for Greece to remain in the euro-zone.
EUR/USD Still High
Euro/dollar trades around the 1.3060 line. It retreated from the area of 1.31 due to Google’s disappointing results during the US session. It seems that the pair still hasn’t reacted to the EU Summit.
Further lines below: 1.30, 1.2960 and 1.29. Very strong resistance is at 1.3170, and it is drifting away.
For more, see the euro usd forecast.