Eurozone Safety Net Still Flimsy

Focus: FOREX

Kathy Lien Image Kathy Lien Managing Director and Co-Founder BKForex LLC, BK Asset Management

There’s growing opportunity in the Eurozone, but until it repairs its safety net, the risks are high, says Kathy Lien.

My guest today is Kathy Lien, and we are talking about Europe and the euro—it seems to be popping up in the news again about problems there still with debt.  So Kathy, where are we with Europe and the euro itself? 

Well Tim, in terms of Europe, we do have a little bit of a reduction in the overall risk environment.  European bond yields have fallen quite a bit—more specifically, Spanish and Italian bond yields—and that is really good news for Europe, because it means that the main cause of tension, which is borrowing costs that are very difficult to service, is no longer as serious of an issue.

But, does that mean that Europe’s crisis is behind us?  Absolutely not.  We still have people questioning whether or not Greece is going to leave the euro.  They are probably going to need an extension to their austerity program. They are probably not going to be able to meet the terms outlined in the amount of time that they have previously pledged. 

At the same time, with Spain and Italy, one bad bond auction and any whiff of bad news could easily send bond yields skyrocketing once again.  What Europe needs they have not gotten yet, and what they need is a safety net provided by the stronger countries within the region.  So far, even though we have heard talk about this possibility, which is part of the reason why bond yields and the euro have rebounded, we haven’t seen any action. 

Alright, so one of the things that has been in the news recently is that Germany has a big decision—whether they are going to kind of save the economy or have Greece fall out of the euro.