Currency Exchange Week 17/2012

Yesterday marked the start of the presidential elections in France, and the first round of voting began. At the end of the day’s voting, the leader was Francois Hollande by a slight margin. Citizens and governments all over Europe are said to be watching the election closely, including the Chancellor of Germany, Angela Merkel. Historically in Europe, various European policies have typically been started and supported by the German chancellor while the president of France has functioned as her supporter and right hand man.

Angela Merkel has worked with the current French president, Nicolas Sarkozy, since he came into office a few years ago, which is why she will likely be interested in having him retain his position as the leader of France for an additional term. The European Union is said to be in a delicate balance of power at the moment, and if Hollande becomes the leader of France, he might not be as willing to play second fiddle to Merkel as Sarkozy has been in the past.

Analysts predict that Hollande is more likely to adopt a confrontational approach marked with more opposition to Merkel’s positions than the current French president. This will likely be done in effort to distinguish himself as a different and new leader of France, as well as in effort to bring France back to the forefront of Europe as a domestic superpower, rather than as an overly agreeable nation that follows the commands of its German neighbor.
A report was recently released regarding the current financial and banking crisis in Spain. The report was generated in response to the collapse of the housing market, and it indicated that the 125 banks located in Spain are going to need close to EUR 54 billion worth of capital in order to keep going and avoid collapse. The hefty sum is going to be spent on strengthening the requirements for capital and reducing the damage of the banks’ vulnerabilities to bad loans that are still in effect.

Furthermore, in Holland this past weekend, talks regarding the state of the budget were temporarily shut down, which only contributed further to the various economic and financial crises in Europe. There are only four countries left in the Eurozone that still lay claim to a AAA rating, and the Netherlands is one of them.

That said, because the government has so far not been willing or able to put into place the roughly EUR 13 billion in austerity measures, their credit score will likely drop from its current top ranking. It is likely that the Euro in particular and the European markets in general are going to decrease in the coming weeks.

The GBPEUR showed higher trading values this past week due to higher than expected percentages in retail values for the previous month. The expected figures were 0.4%, but the resultant figures were 1.8%. Due to these higher than expected figures, the market appeared to be significantly less frenzied, although the GDP figures for Q1 are slated to be released this week, and they may indicate the UK is poised for a second economic downturn, or double dip recession.

It is also expected that the Treasury will soon release information regarding how much is to be set aside by various departments in the government. While the precise figures are unknown, the number being quoted as the amount to be set aside is 5% in relation to the yearly budgets of the departments, which sums up to GBP 16 billion. These measures are occurring in the context of uncertain times within the national economy.

The IMF was able to round up more than 430 billion in capital and resources, which, while significant, was not as much as they had hoped to be able to put together in past projections. The European War chest, or the Financial Stability and Stability Mechanisms can be combined with this value to suggest that around USD 1500 billion is present at the moment in capital and assets.