Euro recovers some ground

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The appointment of a new prime minister for Greece together with a better than expected sale of Italian debt helped the Euro gained some ground against the pound and the dollar.

In Greece the appointment of Lucas Papademos was taken very positively. He has previously run Greece's central bank and for eight years was vice president of the European Central Bank (ECB) so if financial markets are ever going to trust any new Greek leader, Mr Papademos is he.

As for the Italian bill auction, investors stumped up €5bn in return for a 6.09% yield, with a little help of the “unofficial” intervention of the ECB. And albeit at 6.09%, that was considerably more than the 3.57% they demanded from a similar issue last month, it was at least below the psychologically important 7% threshold.

All eyes on Rome today were the senate will be voting for an austerity measures with an outcome expected later today. A new emergency government is expected within days, ending the Berlusconi era. Mario Monti is now lead prime ministerial candidate. An alumnus of Yale, Monti is a professor of economics and has spent five years as an EU commissioner. If investors are presented with a matching pair of technocrats in charge of Greece and Italy there could be a relief rally for the euro, if only a short-lived one.

In France the crisis is starting to hit hard. Nicolas Sarkozy is adamant to reassure the markets especially after credit rating agency S&P accidentally distributed an email that falsely said it had downgraded France. Yields on 10 years bonds rose to 3.47%. The gap between French and German bond yields hit a new record as German yields fell to 1.78%. This basically means that it now cost almost twice as much for the French to borrow.

A forecast of lower growth in France has added pressure to France. International investors want to see France doing more to cut government spending.

Up to now France and Germany have worked hand in hand to tackle the Euro crisis. The balance between the two countries could now become uneven and this could endanger the chances to save the European Union.

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