Changes in Euroland

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Having covered a range of just under two cents the pound started this Friday morning about half a cent lower on the week against the euro. Along the way it was unable to match the previous week's high and it has been under gentle downward pressure since Wednesday lunchtime.

The more things change in Euroland the more they stay the same. At the end of this week the issues facing the euro are no different from the situation seven days ago: The Greek election which takes place in a fortnight's time could deliver another unhelpful result and Spain is strapped for cash. There is still no political consensus on solutions to either of the problems.

In Greece the opinion polls provide no stable picture of voting intentions. On consecutive days Reuters reported different prognoses. On Thursday it said the conservative pro-bailout New Democracy party was ahead of the leftist and anti-austerity Syriza by 25% to 22%. Today's story put Syriza ahead by 32% to 27%. The numbers suggest two possible outcomes: A Syriza victory that could result in the unilateral abandonment of austerity and Greece's exit from the euro or a repeat of last month's indecisive poll and a parliament so well hung that the country remains unable to form a government. The former would pose the most obvious and immediate threat but an extended period under a virtually powerless caretaker government would hardly be more helpful.

In Spain the banking sector's problem child, Bankia, continues to plague policymakers. It needs a €19bn cash injection to stay in business and other institutions are lined up behind it for similar assistance. But nobody has a clue where the money will come from. Normally it would fall to the government to provide the aid, as happened in Ireland. But the government's funding comes through the sale of its treasury bonds and pretty much the only buyers of those bonds are the very banks in need of assistance. (Of course the government also receives revenue in the form of taxation but that is not even enough to pay the existing bills.)

In essence, if Prime Minster Rajoy cannot devise his own scheme to recapitalise his country's banks he will have to go to the EU for a bailout. Thus far he has said he will not do that. With no sign of a solution to the banking sector's problems there is growing nervousness, not just among investors but also Spanish residents. Between them they withdrew €97bn of deposits from Spanish banks in the first three months of the year, €66bn of it in March alone. Some of it has gone to Germany, where investors are happy to receive a negative rate of interest on government bonds in return for the safety they promise. Some has left the euro altogether; British government bonds are returning record low yields as buyers push up their price. And some will have gone under Spanish mattresses, just it has gone under Greek ones.

There were uncharitable sniggers from Europe when Egypt announced this week that it was ending a State of Emergency that had been in force for more than 30 years. Those who mock should consider Europe's own Financial Crisis, which has been in force for four years already and could have several more under its belt. It might all have changed when Britain gets back to work on Wednesday but it probably will not have. A Jolly Jubilee to all.

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