Policymakers seek to break ‘vicious circle’
The creation of a new single banking supervisory system for the region was also announced alongside a package of measures worth €120bn (£96bn) to boost economic growth in the region. The International Monetary Fund warned that: “Full implementation of reforms, as well as establishing a credible public backstop, are critical for preserving financial stability going forward.”
Mario Draghi, the president of the European Central Bank confirmed that the central bank would continue to support the region’s banking sector where necessary. Draghi also warned of “heightened uncertainty weighing on confidence and sentiment” and urged governments to step up and take action, rather than relying on central banks to bear the brunt of the problem. He also observed that “some of the problems in the euro area have nothing to do with monetary policy”.
Spain and Cyprus were the subject of intense scrutiny during the month amid speculation that both countries were poised to request emergency financial assistance. As expected, both countries subsequently confirmed that they would make formal applications for bailout funds. Spain’s Ibex index did rise by 16.6% during June although it has fallen more than 17% since the end of 2011.
The pro-austerity New Democracy party narrowly secured a victory in Greece’s mid-June elections, allaying fears of an imminent and disorderly exit from the eurozone for the country. However, Greece’s problems remain substantial and eurozone leaders have urged the new government to pursue “continued fiscal and structural reforms”. Shortly after assuming power, Greece’s new government flagged a possible renegotiation of the terms under which the country has to reduce its budget deficit. The Athens Composite index increased 16.3% during June although it is down more than 10% since the start of the year.
According to the latest data from the Investment Management Association, sales of equity funds remained relatively flat during May, as demand for global and North American funds was offset by redemptions of European and Far Eastern funds. Europe excluding UK proved to be the worst-selling fund grouping during May, experiencing its most drastic monthly outflows since January 2009.
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