13, February 2013

EUR/USD (a 4-hour chart)

EUR/USD (a 4-hour chart)

By June Eurogroup will have created the scheme of bank recapitalization through ESM European finance ministers (Eurogroup) hope to formulate general rules for direct recapitalisation of banks through the European Stability Mechanism up to June, said the chairman of the board Jeroen Dijsselbloem on Monday.

Currently EMS can provide loans to recapitalize troubled banks only through their national governments. These operations can increase the amount of debt amid the ongoing debt crisis in the region. Now ESM provides banks of Spain through the state fund FROB.

The Eurogroup President said that the Board would consider the possibility of establishing limits for various operations ESM to protect its ratings and credit capacity. This year the mechanism will be the only institution that, on behalf of the euro area will lend new support programs of the governments in the region to avoid a default. Currently, the European Financial Stability lends money to Portugal, Ireland and Greece. Cyprus is conducting negotiations on financial assistance. Last year, the experts did not rule out that Spain and Italy would request support.

The euro rose against the dollar on Monday and Tuesday after the speech of the head of the Central Bank of Germany Jens Weidmann, who did not consider excessive raising prices of European currencies in recent days. Previous experience has shown that the euro's collapse does not always lead to increased competitiveness of the economy. It only creates a need for new actions in this direction.

Euro zone finance ministers will gather on Monday for their fourth meeting to discuss financial aid to Cyprus and Greece. Moreover, the escalation of political tensions in Italy and Spain may renew concerns about the euro zone debt crisis.

Some market actors also remarks the planning meeting of G-20 at the end of the week, which can clarify recent strengthening of the euro and to level the fear of "currency wars", in which certain countries deliberately reduce the price of their currency in order to increase export competitiveness.

Last week, the euro was under pressure after ECB President Mario Draghi left open the question of possible interest rate cuts, and also said that the central bank monitors the impact of the course on the economy.

Risk appetites are recovered after the head of the Bundesbank and the member of ECB board member Jens Weidmann said that the recent figures did not indicate a serious overestimation of the euro. Moreover, Weidmann said that only government not the central bank could overcome the financial crisis in the region, and policies aimed at weakening of the euro would lead to high inflation.

Weidmann also said that the devaluation of political action, as a rule, did not lead to increased competitiveness.

Member of the board of the European Central Bank, Jens Weidmann (who heads the German Bundesbank) in his speech in Freiburg said that the euro was not seriously overpriced and warned the government of trying to weaken the currency.