"To create a mess is easy, to clean up the mess is a tall mountain to climb"
That basically sum up what happens with the EU debt crisis. A small positive step to resolve the issue was made last week after the EU Summit but to totally resolve the issue, still a long way to go, need more times and measures to do it. After the small positive step last week, problem facing next will be the followings :-
1. Can Greece after the 50% default to make Government debt to growth ratio of 120% able to continue cutting down their debt and eventually getting out of recession that remains to be seen within the next few years. Should Greece fails to do it, the worst possible scenario would be total default on Greece and kicks out of Euro to save the rest of the Euro countries.
2. Pressure will be now on other debt ridden EU countries like Italy, Spain, Portugal and Ireland to resolve their debt problems. Of all Italy will be closely watched as it is the 3rd largest economy within the Europe and the fact of even a slight haircut of the debt to investors would have much more impact than that of Greece. Despite lately, the Governments of those countries implementing austerity measures to cut down on their debts, more work still need to be done.
3. Any more bullets from EU or IMF to further resolve the EU debt crisis and what are they ? This is no doubt what investors globally want to know apart from the recent enlarging the EFSF to 1 trillion Euro and recapitalize the banks to meet 9% capital reserve ratio by June 2012. Most believe these 2 measures are not enough to tackle or contain should either Italy or Spain would be the next Greece.
There will be a G20 meeting on 3rd - 4th November 2011 and the focus will be again on the EU debt crisis whereby more details of the above 2 measures will be expecting to reveal in particular where and how to boost the EFSF to 1 trillion Euro.
Global stock markets have rallied since the EU Summit despite it is just a small positive step towards resolving the crisis and most still cautious that the rally might not sustain. However, do not rule out the possibility of markets have hit the bottom some 3 weeks ago. It was also reported that last week Asian markets saw an inflow of funds of 1 billion. With end of the year just 2 months away, corporate earnings so far still doing good, US economic data still suggesting US is growing but at a slower pace only, there is a strong possibility that funds which have since January this year withdrawing money out of Asian markets could start pouring back to beef up their portfolio as staying sideline with too much cash in a low interest rate environment ( and record low bond yield ) will do no good for any fund managers. Hence the current uptrend could possible sustain till end of this year.
There is another event which investors should also monitor that is coming November US will have to come out final detail plan of cutting their debt which initially caused a big stir in August leading to US rating being downgraded by S&P from AAA. This event might cause another volatile session to global stock markets should the same situation happens ( politically can't agree on ) as that in end July to early August.
