In US trade, the euro experienced a choppy session to finish relatively unchanged, as traders focussed on the endless parade of headlines out of Europe.
Over the weekend the ECB's decision to reduce the ratings threshold for banks' collateral was well flagged, and hence the temporary boost it gave the euro quickly faded. Also, the proposal for a 'growth package' worth 1% of EU GDP, or €130 billion out of the Rome meeting of the leaders of Germany, France, Italy and Spain was predictably vague, lacking details on content and financing and thus was given scant regard. So, this week’s attention turns to yet another EU summit.
There have been many such events over the last two years, each of which has failed to deliver anything other than disappointment and confusion. There is absolutely no reason to expect this one to be any different. The pressing issue of ESM seniority is still to be resolved, and a decision will now be deferred until the EU summit. EFSF Chief Regling said that given eurozone loans to Spain would amount to less than 10% of its GDP, the question of seniority is not as important as many have suggested.
That said, Merkel’s philosophical opposition to the bailout is clear, saying after the Rome meeting that the ’Spanish state is responsible for its banks‘, adding that direct bailout funding of banks violates treaties. The situation becomes more laughable and diabolical by the day. Having ended Friday’s Australian session around the 1.2560 level, the euro, after much volatility, closed US trade at 1.2570. Upon resuming for Asian trade, the euro has slumped to be currently in the high-1.2530s.