George is the magazine for St.George Bank’s corporate customers. Aimed at executive-level readers, it features customer case studies, news, articles on emerging business and management trends, product information, lifestyle features and more.
Issue link: http://viewer.e-digitaleditions.com/i/48224
It is critical that European leaders and policymakers deliver a solution ... Containing the contagion has much to do with confidence. Besa Deda C onfidence is at the centre of the stage. Globally, economic confidence has been shaky in recent months, as the European sovereign debt crisis has given economic growth in Europe the wobbles and exacerbated worries about the outlook for the US economy. Not surprisingly, these worries have caused investor appetites for risk to wane, spurring flows towards safe-haven assets. The political process complicates forecasting the outlook for Europe. Any solution on Europe needs to be ratified by each of the 17 members of the European Monetary Union, a feat that is made harder by opposition from within the members' electorates. It is critical that European leaders and policymakers deliver a solution that at a minimum contains the contagion from the growing Greek crisis. Containing the contagion has much to do with confidence. The debt levels on Greece's books are relatively small compared with the likes of Italy and Spain, who are also struggling with high net debt levels. But unlike Greece, Italy and Spain are much larger economies to bail out if a Greek debt default occurs or if the contagion deepens. Already concerns about Italy's political and fiscal position have seen Italian bond yields spike in recent weeks, highlighting the risk to these economies. There is, however, cautious optimism in financial markets that a resolution to Europe's sovereign debt crisis will eventuate, but much remains to be seen. The discussion around a viable solution 34 George www.stgeorge.com.au/george for the European crisis involves significant measures to bolster the bailout fund, known as the European Financial Stability Facility (EFSF). Financial markets are also likely realising that this is a problem that cannot be solved quickly and easily, and so have massaged their own expectations lower. Available options There are two solutions on the table. One is a scheme whereby the fund would insure investors against potential losses on their bond holdings. This is a bid to tempt nervous traders back into buying the debt of shaky economies. The other option would create a second fund to attract contributions from non-European nations, such as China, although this has caused splits within the European Union. By using such financial inventiveness, leaders hope to leverage the fund up to as much as one trillion euros, which they hope will be enough of what has become known as a 'bazooka' to reassure nervous investors. European leaders also appear to have achieved breakthroughs on two related and complex issues, managing a huge write-down on the debt of stricken Greece and making sure banks have sufficient resources to withstand these losses. Until the crisis is under control, however, confidence will remain fragile about the global growth outlook. In Australia, there is a real risk that sentiment over