24, the euro to new lows. We believe that the future integrity of the euro area can not be maintained, the euro continued to weaken in the medium to long term. The short term, before you see the change in attitude of the ECB, the euro's weakness will continue.
 
Why is this important mood
 
Almost all countries have the fiscal deficit, the only difference is that the magnitude of deficit accumulated can match the speed of economic growth. Since the deficit is pervasive, then the debt is difficult to rely entirely on the financial income by refinance old debt and thus become an important source of debt. Currently the main channel of the sovereign debt financing is still rely on the market. The enthusiasm of a subscription market debt, a direct impact on financing costs, while the secondary market bond yields performance on a market, there are also indirect effects.
 
Recalling the case of Greece, Portugal and Ireland, we find that these countries have gone through such a process: First, debt yields rose, and difficult to control; Second, due to financing costs have risen sharply in these countries long-term financing channels to sever; Finally, the financing channels cut off the old debt difficult to repay. As a result, the market sentiment has become very important. From the recent market trend, the mood becomes increasingly difficult to control the exchange rate market has become a new risk.
 
"Crying wolf" story
 
Since 2010, we have repeatedly experienced the debt crisis in Europe is roughly like this: the debt crisis, stopped around the corner, risk aversion increased sharply, followed by the European Union and the IMF launched assistance programs, the risk aversion to stabilize, and with a new crisis the outbreak of a further increase in risk aversion, and assistance measures re-introduced, and so on ad infinitum. As mentioned the story of "crying wolf" when such a situation recurring, the market began to gradually understand the medium-term equilibrium of the debt crisis in Europe.
 
As we emphasized in the euro zone lacks a transcendent sovereignty of Member States and entities, making a fiscal free-riding behavior is difficult to be effectively curbed, coupled with the lack of exchange rate adjustment mechanism, the southern European countries the lack of competitiveness issues highlighted. Cumulative deficit in the total economy can not match, the southern European country's future debt problems will become worse. To solve the problem can only be achieved through the breakup of the eurozone, on the one hand, urged countries responsible for the fiscal balance, on the other hand the exchange rate to float freely but also conducive to the southern European countries to regain competitiveness.
 
Based on consensus forecasts of euro area long-term equilibrium, the market has been the trend of the early response. Lows in the Spanish assistance program to start soon, the case of 30 billion euros in the first batch of aid funds to be allocated, the euro still hit a stage that is strong evidence. Among these, contains Spain deterioration of the local financial impact, but we think that even more noteworthy is that the market expectations are difficult to control. The importance of debt in view of market sentiment, this issue need to attract the full attention of the market at the same time, the weaker euro medium-and long-term view basic confirmed.
 
ECB "standing on the sidelines"
 
The market is expected to become difficult to reverse, risk-averse behavior lead to liquidity scarcity of funds and government bond market in the euro area. Although the ECB interest rate cut operation, but it is difficult to fundamentally change the status of the scarcity of liquidity. Beginning in February, the ECB has not purchased the national debt of Spain and Italy, resulting in high yields in Spain and Italy, especially in the Spanish bond yields have exceeded 7% high, if the upward trend is not curbed. front we talk about the debt crisis in Greece, Ireland, Portugal and other countries may be repeated. See prior to the shot of the ECB, the euro's weakness may be difficult to be reversed.
 
We believe that the ECB's policy tightening is an interactive process. ECB is worried about the assistance efforts to relax the southern European countries will make it tight, passive shoulder the burden of solving the debt problem. In the debt crisis in Europe, the European Central Bank show-than-expected independence. Therefore, unless the greater intensity of the austerity of the southern European countries, the probability of ECB shot will be relatively low. Therefore, short-term tracking the euro area trend, still glued to Spain, Italy and other countries, austerity measures and the movements of the ECB.
 
Overall, we believe that the euro-zone integrity can not be maintained in the medium to long term, medium-and long-term euro will continue to weaken. Short term, the ECB's attitude about the key factors of risk aversion, see the change in attitude of the ECB, the short-term euro vulnerable will continue.



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