The Pound to Euro Exchange Rate has strengthened from 1.191 this morning to 1.201 this afternoon, as investors reacted slowly but surely to a breakdown in Greek debt talks.
The Eurozone benefitted from a positive start to the day with Manufacturing and Index figures rising above the 50.0 mark in Germany which in turn caused both stats to grow in the EU as well. Debt auctions went very well in Spain with €2.5 billion of short-term debt sold; 3-month yields dropped from 1.735% to 1.285% and 6-month paper bills fell from 2.435% to 1.847%. The ever-steady Netherlands who retain their AAA credit rating, sold 30-year debt with yields falling from 4.03% to just 2.69% and €495 million of 2013 bonds with virtually no yield at 0.074%.
This good news however, was sidelined as Eurogroup finance ministers ruled that Greek bonds be cut in half with a new coupon value of 3.5% rather than the 4.0% demanded by private sector investors. The decision stoked fears that Greece may be forced to make the cut involuntarily, which could trigger Credit Default Swap payments. CDS payments in Greece come with the risk of contagion to other struggling Eurozone economies – of which there is an abundance of with Portugal, Spain, Italy, and Ireland coming to mind.
The bubbling troubles that circulate around the cauldron that is the Eurozone debt crisis are, according to the IMF, approaching boiling point. The International Monetary Fund has cut its world growth outlook to 3.3% from 4.0%, citing the ‘Euro area economy’ as the primary concern. Eurozone growth has been cut from 1.1% down to a contraction of 0.5% and UK growth has been slashed from 1.6% to 0.6% due to the area entering a ‘perilous new phase.’