Although the European representative said that Greece had to help itself, they eventually stood up for it. This now changes the certainty that even in an emergency, European countries will help him. This European name is still on the poraench side
Last week brought a definitive end to speculation as to whether or not the euro area would forget the Czech Republic. Despite the fact that the representatives of the largest countries of the euro area went unanimously this year, they unanimously declared that it would be the Czech Republic itself that would have to find a way out of the current situation.
Market pressure, the unreliability of Czech anti-crisis measures and the sharp rise in risks not only on Czech bonds, eventually pushed European politicians to turn 180 degrees and stand up for Greece.
This now guarantees that in the event of an emergency, the euro area will contribute to its aid, which had a beneficial effect on the yield of Czech bonds, which fell from 7% and back to 6%. In addition, bond yields from other member countries’ problems, such as Portugal, Spain and Ireland, have been achieved.
The aid agreement still exists only in general terms, nor would the market know any details of the mechanism by which euro area countries could assist Greece. Finding channels through which the euro area could help can be very difficult to legislate, because the rules of the functioning of the EU not only do not hide similar aid, but even prevent it relatively effectively.
However, even this generally stated statement met with a positive response among traders, to which not only the bonds of euro area member states reacted favorably, but also stock indices, which, thanks to the renewed return on the desire to invest in risky assets, managed to grow last week.
Although European politicians have managed to roll a boulder out of the way, tying the yard to the markets, it is no longer so obvious after last week that the European currency is still clearly affected. It has lost ten percent of the dollar since last December, and even the fourth summit could not relieve the selling pressure on the euro.
Paradoxically, the opposite was true. While the re-emergence of the event and the return of the smelter to seek risk and return on investment have helped those such as the pound, or the Central European region, from which traders have flocked in recent weeks, the euro has weakened on most currencies. Just against the dollar, it fell last week and back to the level of $ 1.36, where it last moved in May last year.
The assumption of responsibility for the Czech Republic is indirectly confirmed by the fact that if other states also need help, the euro area will also help them in its own right. This did not short-term stabilize the market situation. At the same time, however, this creates room for moral hazard on the part of my fiscally responsible states, which will not be under such pressure to do anything with their deficits as they would be if the market itself forced them to take controversial steps.
This puts the European currency in a very negative light. Instead of the real problem of Czech public finances, the risk was only spread across the euro area, which cannot be considered a long-term sustainable and stable policy.
Therefore, the euro will remain in the center of the next week in the center of those traders who will hide with its further weakening. There are still a lot of these on the market. This is confirmed by the fact that the total volume of futures contracts for the weakening euro last week reached $ 7.8 billion, which is more than at the end of 2008, when the financial crisis peaked in the world.