Is German backing enough to save Europe?

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There was a widespread relief in the markets yesterday as the Germans approved an increase in the European Bailout Fund. The vote increases the European Financial Stability Facility to €440bn (£382bn).

There has never been much doubt about the outcome of the vote but it still helped the euro recover some of the ground it has given up over recent weeks. However the Eurozone will need more than the German support to get out of the danger zone.

The enlarged bailout has already been seen as insufficient in the light of the worsening Greek crisis. The representatives of the ECB, the European Commission and the IMF are still in Athens auditing the government austerity plan to decide if they deserve another €8 billion (£6.9 billion) of loans. Civil servants in Greece blocked the entrance of the international inspectors yesterday at the shout of “Take your bailout and leave”

There is not good news from Italy either as the first debt sale since S&P cut Italy's rating took place yesterday. Italy ended paying the highest yield on a 10-year bond since the introduction of the euro at an auction. Rome paid a high of 5.86 per cent to offload the €7.86bn of bonds. The rate is dangerously close to the perceived “crisis” threshold of six per cent and outlines the poor growth prospects and damaging political uncertainty in Italy.

Meanwhile China, one of the biggest buyers of European debt, declared yesterday that they need to have the reassurance that European leaders have a coherent rescue plan. The Head of China’s sovereign wealth fund, Jin Liqun, pointed out that China will not buy Euro debt “without a clear picture of debt workout programmes”

In the UK we have seen some good data at the end the week. We saw a modest improvement in both Nationwide House prices and Mortgage approval and UK consumer sentiment showed an upturn for the first time in 4 month, so you could be forgiven for thinking there might be a light at the end of the tunnel.

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