Spain as well as Portugal and Italy are in the focus of market attention on Wednesday. The problems of the Eurozone periphery countries highlighted the day before in IMF's World Economic Report, weighed negatively on sentiment. European stocks opened in the red and extended losses throughout the day while EUR/USD fell below 1.3100.
The Bank of Spain announced on Wednesday a 18-year high in banking bad loans, of 8.2% obtained in February. The tough budget cuts introduced recently by the Spanish government will only increase the amount of loan defaults, which will further damage the sector.
Meanwhile, the Italian government decided to postpone for a year its plan to attain a balanced budget in the face of a worse economic outlook. According to the new estimates the Italian economy will contract 1.2% in 2012, in comparison with the previous forecast of a 0.4-0.5% decline.
According to Kathy Lien, Director of Currency Research for GFT, “it shouldn't surprise anyone that the Italian economy is in trouble but the latest revisions show the degree of damage that Mr. Monti's tough austerity measures will have on the Italian economy.”
“These forecasts are still more optimistic than the IMF's, who predicts a 1.9 percent contraction this year,” adds the analyst who also points out the “the Euro area economy as a whole is also expected to contract in 2012 and negative Italian growth will be a large contributor to the decline.”
Turning to Portugal, on Wednesday the country's PM Pedro Passos Coelho expressed his doubt in an article for the Financial Times on whether his government was capable of implementing all the measures necessary to reduce deficit, required by the EU. The Portuguese PM did not rule out a situation in which the country would need to ask for more international aid.
Thomas Jordan appointed permanent SNB President
As expected, the Swiss government announced on Wednesday that Thomas Jordan, who served as interim head of the SNB after Philipp Hildebrand was forced to step down amid scandal, would become permanent President of the central bank.
Jean-Pierre Danthine was named vice chairman of the governing board while Fritz Zurbruegg, the director of the Federal Finance Administration, was appointed to the board.
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