Professor Fariborz Moshirian
Tensions remain in Europe as details of exactly how the European Central Bank will stabilise the bloc’s bond markets, now there are possible plans for a new wave of bond purchases aimed at helping to calm the euro zone’s turmoil, and optimism the European Central Bank (ECB) will provide more help to euro zone nations under pressure from the markets.
For the euro, the biggest uncertainty is whether the debt-laden governments of Spain and Italy will take up the ECB’s hinted offer that they seek financial aid from European bailout funds as a precondition for the ECB buying their bonds. Such assistance would likely come with strict controls over fiscal and economic policy.
For the euro zone to find its way through this crisis, any intervention in the bond markets needs to be combined with a bolder overhaul of the system itself. However investors are so worried that the slightest sign of a problem means they rush into safe-haven assets. Right now the EU needs a detailed plan to build a banking union and to mutualise some debt.
The markets are however very nervous. There are still many challenges facing Greece and Spain. The ECB has so far not taken enough action to stabilise the bond markets, and details of how it will do this and how effective it will be remain unclear. There are ongoing concerns about the potential for opposition from Germany – the euro zone’s largest country and paymaster – to any large-scale bond-buying program.
Professor Fariborz Moshirian is the Director of the Institute of Global Finance at the Australian School of Business.