A meeting of Eurozone finance ministers in Luxemburg today, on 20 June, ended without approval to lend €12bn ($17bn) to Greece until the country’s parliament passes new spending cuts and economic reforms worth of €28bn. The matter is time sensitive as Greece needs the €12bn by July to avoid defaulting on its debt. The Eurozone finance ministers require further austerity measures; however, Greece may also relay on some EU countries’ voluntary aid.
French President Nicolas Sarkozy and German Chancellor Angela Merkel announced on last Friday that they will support Greece by purchasing new Greek bonds when existing bonds mature and encouraged others to follow their suggestion on voluntary basis. Such decision may not be acceptable in regard to taxpayers of Germany and France but when the possible decline of euro is directly related to the worth of governed assets, a voluntary aid is fully understandable.
However, looking to the long term perspective sound investment programmes, but not just austerity measures, should be the main focus for the Eurozone finance ministers as long as European Investment Bank, European Investment Funds and European Bank for Reconstruction and Development were established for the purpose to make a long-term finance available.
Similarly, analysing the outlook of the US economy state, id.est accomplished QE2 programme, increasing debt obligations and additional borrowing needs; the raise of yields of the US long term treasury bonds and depreciation of US dollar should be expected in short term perspective. Consequently, countries those use US dollar as reserve currency and possess trade surpluses most likely will suggest their voluntary aid and buy US long term treasury bonds so that the worth of their governed assets were preserved.
Thus, for those who follow short term trends, summer time should be an important period to observe. Most likely the capital flows will be based on a voluntary aid.
