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Banking

Bond Outlook by bridport & cie, June 8 2011

Trichet agrees with us that federalisation is the answer, too! The movement is underway but with opposition in both the rich North and the poor South of the EU.

Bond Outlook

As we suggested might occur last week, the weight of press coverage has tipped in favour (if that is the right expression) of the USA during the last 7 days, as fears have temporarily eased over bail-out programmes in the euro zone. Yet more needs to be said about the problems of the euro, not least because of the difficulties Finland has in forming a coalition which accepts the need to bail out the peripherals.

 

The Finnish issue highlights the types of obstacle which are likely to be encountered in a move to greater federalisation within the euro zone. They are different, but no less significant than the obstacles being encountered within the peripheral countries themselves, with populations increasingly unwilling to accept severe austerity measures. Whether the rioting which has already happened in Greece will ultimately signal a victory for people-power (resulting in the removal of the government, and even, at the extreme, ushering back military rule) will be known only with the passage of time. Of the three countries of most concern, Greece is certainly the one where this danger is greatest; Portugal has just elected a government on an austerity package, while grim acceptance seems to be the mood in Ireland.

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