Focus on Europe after Ireland Debt Crisis

The spotlight this week is shining brightly over the Irish Debt Crisis which, despite initial optimism over the bailout has now led to people looking at who is next as a domino effect of bankrupt countries could now start to take shape in Europe.

The group of countries known as the P.I.G.S which is made up of Portugal, Italy, Greece and Spain have already been subjected to some stimulus from the wider European community, remember Greece at the beginning of the Summer? And these other nations are now sitting rather uncomfortably as questions arise regarding there financial status.

Markets yesterday were not convinced that aid to Ireland would prevent other heavily indebted members of the 16-nation bloc from also seeking help.

Indeed, Canada’s finance minister said on Monday that he is pressing the European Union to address the Portuguese debt crisis quickly, although he fell short of saying the country would need a bailout.

On Monday, markets initially were supportive to the news that Ireland had requested a bailout to shore up its banks and state finances.

Optimism quickly faded however as party politics started to play a part in the affair as Ireland’s junior coalition party called for fresh elections. The county’s prime minister has however vowed to stay in power long enough to pass an austerity budget needed for the bailout package, and then call an early election.

Investors and market analysts now face two nervous weeks of political manoeuvring as the government decide what steps to take next, with not only the eyes of the nation watching, but with the EU and IMF circling like sharks ensuring that there money is being allocated correctly and looking at the bigger picture of getting there money back, with interest.

Market wise this has meant that despite the initial strength of euro versus the pound, we have seen the market continue to weaken in favour of sterling sellers to the Euro, with the 1.20 price now in our sights. Markets will remain choppy as news from Ireland and Europe in general filters through, which inevitably will cause some volatility.

A Reuters report this morning offers a stark warning for any Euro sellers however with the claims that the pound is set for gains after a solid set of fundamentals have also supported the pound as the threat that the Bank of England increasing quantitative easing has cooled.

This process, which increases the amount of cash in the system, is often currency-negative.

Strong manufacturing data yesterday helped to indicate growth as the UK continues to recover from the recession, and apart from our own involvement in the Irish bailout, to the tune of £7 billion, we are able to sit from afar and look at other peoples problems and benefit from the decline in some euro-zone economies.