Trouble abound for the euro zone sovereign bond market by the global market confusion apart from retention of Britain in UK and migration problems. The Portuguese, Spanish and Italian government debt rather than German bonds were in crisis early February.
European bank shares fare badly due to near nil interest rates, strict regulations like forcing shareholders and bondholders to primary losses and non-performance.
Public of Southern Europe are up against further austerity measures leading to political instability, which is also due to budget problems. The euro zone economic growth is 1.9 percent this year against 1.6 percent last year.
Euro zone countries are not helped to clear the debt even though helped by European Central Bank (ECB) in Bond buying or interest rates or even inflation.
All the above reasons have an effect in the accumulation of crises.
Euro zone finance ministers are however positive. As per them the situation is manageable as they are well prepared now than 2010. Some of the handlers they have, are the European Stability Mechanism rescue fund, banks with good capital, better banking union, suitable system for failing banks and resolution fund.
The ECB is now equipped in helping to revive and recover with ease and capacity to support bonds in case or requirement.
Expectations of a relaxed policy from ECB, by the markets, may or may not pep up the banks.
Sovereign bonds of weak countries are feeling the pinch like the banks, in spite of the EU reforms meant to revive “doom loop”.
Situation has become uncertain, because of limiting the home country debt holding by banks and also providing differential risk weightings on the books, as insisted by Germany and Netherlands.
The other major factor for worry is the political situation of many countries forcing to go back on the correcting measures.
Portugal’s present government has slipped on austerity measures agreed by the previous one. It is still able to continue in ECB’s asset purchase program as it is able to muster one condition of one ratings agency’s nod for investment grade. It has also the backing from ESM for bailing them out, if required.
In spite of a caretaker government and the budget deficit going off track, Spain’s economy is improving and banks overhauled.
Greece under leftist government, faces strike protesting against planned pension reforms and farmers’ tax increase. Hence hesitant on the third bail out implementation. But as everyone wants to avoid a repeat of another crisis, the third bail out plan may go through.
Being a year away from elections, Italy’s Prime Minister Matteo Ranzi, resists the European Union's budget discipline rules terming them economic growth constraints. Already Italy has benefitted from any flexibility in rules as per EU officials.
Without state aid, Italian banks struggle to bring down non-performing loans and maintain profitability, have taken a beating of their stocks.
As per France and Germany, the refugee crisis, border controls and the "Brexit" negotiations could still be the dampeners. Still there are no signs of a plan for "the political and democratic framework, the institutions and stability instruments for stability and growth” as promised by the French President.
