Currency update - 22 June 2012

 
Old Jun 22nd 2012, 7:58 am
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Default Currency update - 22 June 2012

All eyes on the Rome summit

- Monti needs a deal
- Rajoy needs a reality check

Britain's Conservative secretary of state for education has come up with a radical idea; examinations for 16-year-olds which are so extraordinarily difficult that some candidates will fail them. The idea has been dismissed out of hand by the Liberally Democratic deputy prime minister because it would reveal that intellectual ability is not evenly distributed. Ah, coalition life is tough in London. It must be desperate in Athens, where three disparate parties must agree on far weightier matters. They will abandon ideological differences this evening though, as they sit glued to the screen while Germany demolishes Greece in the European football championship. Apparently the deal is that if Germany is allowed to win by two goals or more, Greece gets a break on its austerity conditions.

But first, Prime Minister Samaras and Finance Minister Rapanos will have to face Chancellor Merkel and Wolfgang Schäuble across the negotiating table in Rome. Alongside them will be Italian premier Mario Monti and Spain's Mariano Rajoy, who also have serious work to do. By all accounts Mr Rajoy goes to the meeting least well-equipped to handle the reality of the situation. His refusal to accept that Spain's €100bn bailout is any more than a short-term advance from a mate suggests he will not have the mindset to look ahead to the full-scale rescue which looks ever more likely.

Mario Monti's job will be to persuade Frau Merkel that Germany must support a scheme to prop up the value of Club Med government bonds, and do it soon. He is under pressure from Italian politicians to come away from the meeting with a deal that would make the EFSF and ESM funds the buyers of last resort for troubled government debt. Angelino Alfano, general secretary of Silvio Berlusconi's Popolo della Libertà party said "we will back Monti in spite of difficulties until the summit; after that it will depend on Angela Merkel.

Mr Monti's thoughts on the subject were made clear when he said yesterday that "we have a week to save the euro". This might sound odd to those who remember hearing a couple of years ago that we had three months (or was it six?) to save it but there has been no clamorous contradiction of Mr Monti's sentiment.

Investors were not at their most eager to buy the euro ahead of the summit meeting. On Thursday it lost a cent against the US dollar and slightly less than that against the pound. It is unchanged against the yen.

Sterling had a better time of it, making headway against everything except the US dollar, where it is half a cent lower. The UK retail sales figures were a big help, rebounding by 1.4% in May to a level 2.4% higher on the year. There are no UK figures today but the pound will have to contend with credit rating downgrades for the country's largest banks. The impact of the news on sterling will be blunted, though, by similar downgrades for other big banks in Euroland.

Friday's agenda is thin on ecostats, with just the IFO survey of German business confidence and the Canadian inflation figures. That lack of statistical diversion will put the EU summit meeting and the euro even more squarely in the spotlight. Have a good weekend.
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