High US Earnings
The US dollar and the yen pared earlier gains after a rise in risk sentiment among investors. Investor demand for riskier assets was prompted by positive US data which pushed US stocks higher and eased fears caused by recent fraud charges brought against Goldman Sachs. Investors remain wary of the euro due to the ongoing Greek debt crisis and a recent statement by European Central Bank Governing Council member Axel Weber who said Greece may require 80 billion euros to avoid default. The amount is far greater than the 30 billion euro aid mechanism approved by EU finance ministers earlier in the month. Lee Hardman of Bank of Tokyo-Mitsubishi UFJ stated, “No one believed that initial amount would be enough to cover Greece’s funding needs. The short-term liquidity risk may be reduced, but that doesn’t resolve the issue of debt sustainability. It’s difficult to see a way out for Greece.”
EU Economy Hammered by Ash Cloud
The Greek debt crisis has been further exacerbated by the transportation faced by European nations due to the massive ash cloud from a recent Icelandic eruption which has sent millions of pounds of ash towards Europe. Airlines report losses of $300 million dollars per day because of the grounding of most flights in Europe. Greece’s Aegean Air is losing 50,000-600,000 euros per day because of the flight disruptions and the airline has cancelled about 60% of its international flights. The disruption of European air travel forced the Athens government to reschedule its meetings with EU, ECB and IMF officials. The Euro Zone economy, which is already fragile, has been adversely affected by the giant ash cloud. The disruption is so serious that European Commission President Jose Manuel Barroso ordered the formation of a group to study the economic impact of the ash cloud. Last Sunday Barroso stated, “The volcanic ash cloud has created an unprecedented situation. I have asked Vice President Kallas to coordinate the Commission’s response and fully assess the impact of the situation created by volcanic ash cloud on the economy, and the air travel industry in particular.”
Euro Zone Will Grow Only 1% in 2010
Euro Zone recovery has been shaky at best and the ash cloud is adding to the euro’s woes in currency markets. According to a forecast by Ernst & Young the euro zone will grow by 1% this year after contracting 4% in 2009. Giovanni Bisignani, director general and CEO of the International Air Transport Association stated, “This crisis is costing airlines at least $200 million a day in lost revenues and the European economy is suffering billions of dollars in lost business.”
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