Investors are tiring of the endless succession of agreements to resolve the Euroland sovereign debt crisis. Plans A through D have come and gone, either applied only selectively or trashed in toto. November's Plan D, for example, had investors "voluntarily" writing off 50% of their loans to Greece. A couple of days before Christmas the International Monetary Fund moved the goalposts. It called on bondholders to dig deeper and accept what would amount to a 65% loss. Investors had not been overjoyed about losing half their money; they were even less enthusiastic at the prospect of losing two thirds. Plan E, the latest, is a long-term project that will compel member states to observe the rules of the 20-year old Maastricht Treaty and the Stability and Growth Pact of 1997. In essence, countries that fail to keep their budget deficit below 3% of gross domestic product will be punished. How, and by whom, has yet to be decided.
There was one measure that might have turned the tables. The European Central Bank said it would make unlimited three-year loans available, at 1% interest, to every Euroland commercial bank. The first round of this Longer Term Refinancing Operation took place on 21 December. Analysts had calculated that demand could amount to €300bn. In the event, more than 500 banks lined up to borrow an average of nearly €1bn apiece. Any excitement that somebody was doing something was eclipsed by concern that so many banks needed so much money. The exercise did nothing to lower the Italian government's borrowing costs, which remain five percentage points higher than Germany's.
Neither Britain nor the United States face any comparable problem. Both are proprietors of their own currency, a position that gives them the power to adjust interest rates to suit their individual circumstances and to print as much money as they see fit. The latter ability means they need never default. For now, that gives them an advantage against the euro and both have strengthened against the single European currency by about four cents in the last month. There is every chance they will have picked up another four by the end of January.
This even should trigger an increase in interest in properties in France, check out our French mortgage best buys.
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