The eurozone and investors return to normal

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The eurozone and investors return to normal

After years of debt crisis, the euro zone may finally return to its normal surface, causing panic in the world. It has been two years since a group of 18 member states have been fighting for their lives, and investors have been knocking on the door of the euro zone again, acquiring assets deemed dangerous a few months ago.

The latest sign is the bond market, where borrowing rates from countries that seem to be on the brink have returned to pre-crisis levels.

Christian Parisot, an economist at Credit Agricole CIB, a paris-based investment bank, said: “the risks associated with the eurozone have been greatly reduced in the past few months.

Spain, Italy and aid to Portugal and Ireland have seen their borrowing rates fall sharply.

By the end of this week, Spain’s benchmark bond traded around 3.8 per cent, well below the level of more than 6 per cent in 2012. In Italy, it is 3.9%.

Falling sovereign yields have helped stimulate the economy, and have greatly reduced the pressure on the government to impose more austerity measures on the people.

Its German private bank senior economist Christian Schulz (Christian Schulz) said: “the mood is generally strong, for the periphery, the mood is more strong and powerful.

On Thursday, Ireland went public on Thursday, with Portugal on Thursday meeting a large demand for medium – and long-term debt.

“PIIGS (sic) can fly,” said Holger Schmieding, an analyst at Berenberg bank in Portugal, Ireland, Italy, Greece and Spain.

Spain’s borrowing costs also fell sharply on auctions of five-year and 15-year bonds. Mario Draghi, President of the European central bank, said the easing should be appreciated for Mr Schmittin.

Mr Draghi has said bluntly that he will do everything he can to save the euro, ending the irrational panic that has engulfed the eurozone and the region.

But analysts also applaud those countries that are not in vain to “tighten” their “pain” in the face of a recession and record high unemployment.

“The mood at the periphery of the eurozone is at least as quick as the region’s,” said analysts.

“Premature announcement of any victory” : drudge

However, interest rates in richer and poorer countries are much higher than when the euro was introduced a decade ago. Today Germany and France still enjoy far lower borrowing rates than their southern counterparts. Bonds issued by ultra-safe Germany rose about 1.9 percent on Friday and France gained 2.5 percent.

Low interest rates mean low returns for investors.

“Investors have little hope of German and French gains,” says Parisot. “they are looking for better returns, and they are getting back to riskier countries.

But even if rates are likely to fall, analysts warn that anything in the euro zone is hard to solve. “This convergence will continue, but it will be slow,” said Cyril Regnant, a bond strategist at Natixis. He added that “things have improved but not normalized”.

Ireland was bailed out by the eu-imf in December, and Portugal should do so in May, clearly aware of the dangers. Their bond sales were limited to a set of pre-set investors, which capped the accident.

“Their return to the market is a gradual process,” says Parisot.

The volume of transactions involved is very low, meaning that even a small amount of demand would dramatically alter the price of borrowing.

Ronan Blanc, a bond manager with Quilvest Gestion in Paris, warns that the calm is cheating.

“No country has a long-term default on its debt,” he said.

He says Italy has a huge $2 trillion in debt, a new record of 93.4 percent of gross domestic product in the third quarter of last year

. This proportion of debt needs inflation, or years of strong growth.

Or, as in Greece, it can be reorganized by writing off, but this radical solution will only rekindle the crisis.

ECB President Mario draghi himself has called for caution, the start of a continuing crisis. “It is too early to declare any victory,” Mr Draghi said. He added that the recovery remains fragile.

 

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