As markets get ready to leave the second quarter behind, Europe will continue to dominate the news but expectations for any progress there this week are low.
The EU leaders summit Thursday and Friday has been dangled before markets as though it might be a productive event. Yet analysts see little coming of it, even though there are hopes for the framework for a banking union. The summit is expected to result in a stimulus package of some 130 billion euros in infrastructure bonds, regional aid funds and European Investment Bank loans.
Comment s from Europe’s leaders ahead of the summit have been sparking market reaction this week. The latest zinger was from German Chancellor Angela Merkel, who in reiterating to members of her coalition that she does not support a common euro bond , was quoted as saying Europe would not have shared total debt liability “as long as I live.” France, Italy and Spain favor the common bond.
“The Merkel rejection and finality on euro bonds undermined the euro,” said David Gilmore of Foreign Exchange Analytics. He said, however, it rallied back later Tuesday on news reports that euro zone governments are discussing provisions to keep private creditors of euro zone debt from becoming subordinated to the ESM bailout mechanism.
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