The European Central Bank will leave rates on hold on Thursday and continue to assess the impact on the economy of two rounds of cheap, 3-year funding for banks, analysts told CNBC, warning that the bank’s ability to fight the crisis is waning.
Standard & Poor’s ratings agency denied on Friday it had not taken into account the recent reforms Spain had announced when it downgraded the country for the second time this year, saying Spain’s weaker-than-expected economic outlook and rising risks in the banking system had added to concerns and prompted the downgrade.
As members of the Dutch parliament convene on Tuesday afternoon to discuss the collapse of the country’s government, analysts warn that the Netherlands will likely continue to face political instability that will set investors’ nerves on edge despite the country’s healthy fundamentals.
The European Central Bank must go beyond liquidity injections and buy more government bonds to address the sovereign debt crisis in Europe before further problems arise with even serious consequences for the euro, Pierre Lagrange, co-founder of investment manager GLG and founder of MAN Asia said on Tuesday.
Economic fundamentals in Europe are improving substantially and Spain will not need additional aid as the results of its reforms will become apparent in six months’ time, ECB Governing Council Member Ewald Nowotny told CNBC’s “Squawk Box” on Monday.
The European Central Bank’s twin 3-year refinancing operations, known as Long-Term Refinancing Operations (LTROs), have not solved Europe’s problems, but have distorted markets which are now reacting excessively to marginal pieces of news, Saxobank’s chief economist Steen Jakobsen said on Friday.
Levels of government debt have soared in most countries since 2008 as a result of the financial crisis and will need to be brought down to “prudent” levels of around 50 percent of gross domestic product to cope with future challenges including health and long-term care and pensions, the OECD said in a report published on Thursday.
French President Nicolas Sarkozy is expected to unveil a handful of new measures to reinforce proposals he has already outlined, as well as a “Letter to the French people” on his vision for the country’s future as he steps up his campaign for re-election.
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