Saturday, November 16, 2013

EURO-ZONE ELECTION 2014-INTEREST RATES TO REMAIN LOW FURTHER

European banks interest rates would be climbing down further in 2014 as the election of the European economy becomes due in May 2014. Currently in my research I find that Anti–European like the French National Front, the Dutch Party for Freedom (PVV) or British Independence Party (UKIP) may make up 25% or more of the future Parliament. Sluggish growth and high unemployment are the ruling factors in the euro-zone economy. Hence interest rate would be coming down so that consumers can borrow at cheap and more political interest would be involved. In between on Dec.17, Angela Merkel is due to be re-elected as chancellor by the Bundestag and hopefully she would be in the position again. In between the ECB and euro-zone banking system is busy in cutting down on lending and increasing their exposure to sovereign debt. 

In a recent report by rating agency Fitch shows that, in anticipation of stricter capital rules, the largest European banks increased their exposure to sovereign debt 26% in 2011 and 2012, while cutting corporate lending by 9%.Youth unemployment is around 8% in Germany, compared with 56% in Spain and this disparity is provoking the anti-Europeans. On other side the stress test would be mixed and hence to keep the foreign bond holders happy the interest rates would be lowered so that premium on the bonds increases. Moreover this would keep the bond holders happy and let them buy more sovereign debts. All these are interlinked and the biggest drama of political game is about begin in 2014 but prior to that the trailers of the same are going to be seen from December 2013.

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