In an article published by Bloomberg News, the International Monetary Fund said European banks may need to sell as much as $4.5 trillion in assets through 2013 if policy makers fall short of pledges to stem the fiscal crisis, up 18 percent from its April estimate. Failure to implement fiscal tightening or set up a single supervisory system in the timing agreed could force 58 European Union banks from UniCredit SpA (UCG) to Deutsche Bank AG (DBK) to shrink assets, the IMF said. That would hurt credit and crimp growth by 4 percentage points next year in Greece, Cyprus, Ireland, Italy, Portugal and Spain, Europe’s periphery.
The Euro group summit continued on Tuesday, this time with all 27 Member States participating in the talks, but without any significant decisions being announced. Another highlight of the day was German Chancellor Angela Merkel's visit to Greece, for the first time since the onset of the European debt crisis. The German leader met with Greek PM Antonis Samaras to discuss the Eurozone crisis. During a press conference following their meeting, the Greek leader informed that the topic of their discussion was closer cooperation between the two countries.
He also assured that Greece is determined to remain part of the Eurozone and that it would implement the necessary austerity measures. The German Chancellor emphasized however that the road to recovery would be long and difficult and that the next tranche of EU aid, when finally released, would not be the answer to all the problems. She also expressed her satisfaction with the visit to Greece, which provided her with a better understanding of the country's situation.
EUR/USD: The EUR/USD was trading lower at 1.28646 at the time of writing on uncertainty over whether Spain will seek a bailout and worries over the next Greek aid disbursement and low earnings expectations, which made the liquid dollar an attractive safe haven. Yesterday, German Chancellor Angela Merkel maintained pressure on Greece to meet austerity pledges, while proclaiming her desire to keep the country in the euro. After meeting Greek Prime Minister Antonis Samaras in Athens yesterday, Merkel told reporters that while “a lot has been done, much remains to be done.” In addition, Spain’s economy minister Luis de Guindos said yesterday the nation will decide on the “sensitive” issue of a full bailout, taking into account the impact for the whole euro area.
European Union leaders are scheduled to gather for a summit in Brussels on Oct. 18-19. Today, investors should closely monitor the French and Italian industrial production, which declined according to the median estimate of economists in a Bloomberg News survey. While the U.S. will release its Beige Book and later the FOMC Member Fisher will make his speech. Spain’s Prime Minister Mariano Rajoy meets French President Francois Hollande today in Paris as investors weigh whether the Iberian nation will ask for a bailout. Headlines of the meeting will affect sentiments for the pair. The resistance level is at 1.29252 and the support level is at 1.28666.
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