Markets soar on $900 billion bailout for EU, or Wither the Euro?
Stocks reached levels they haven’t seen since…last week.
The markets saw some serious volatility towards the end of last week and that continued as the market surged today. But plugging the holes via a massive liquidity intervention is not exactly a sure thing:
Just hours after leaders agreed to provide nearly $1 trillion as part of a huge rescue package, central banks began buying euro zone government bonds directly on Monday — an unprecedented move to inject cash into the financial system.
In response, the euro has rallied against the dollar, markets surged and the risk premium on Greek and other government bonds plunged. But analysts pointed out that the package did little to reduce overall debt, and that the uncertainty that has plagued the markets could return if European nations did not take bold steps to reduce their borrowing.
“If the will for fiscal discipline in the E.U. is plainly evident, long-term confidence in the euro will be restored,” Michael Heise, chief economist of the German insurer Allianz, said in a note to investors.
The Euro seemed to hit bottom last week at $1.25, and surged to $1.31 early this morning on the bailout news. But that didn’t last long as the Euro was last trading at $1.277 vs the US dollar.
So much for confidence in the Euro.