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Forex Flash: Old EU institutional framework is inadequate – Goldman Sachs

FXstreet.com (Barcelona) - It is now almost universally acknowledged that the Euro crisis is proof that the original institutional set-up for the currency union was inadequate. Where there is less agreement is on the kind of institutional change needed to achieve long-term stability for the Euro area. According to the Economics Research Team at Goldman Sachs, “One school of thought argues that only further fiscal and political integration, which would also include permanent risk-sharing and fiscal transfers between countries, can guarantee the long-term survival of the monetary union.”

A further deepening of the fiscal union beyond the changes already made over the last year would face significant political and legal hurdles in Germany. A separate argument against the introduction of a deeper fiscal union is the risk of moral hazard that deeper union would present: “if a country can rely on financial support from others, it may be more cavalier about its own fiscal position or about other risks that may weaken its fiscal position at a future date.” the team warns.

European markets mixed as EU Summit takes place

The German DAX 30 (+0.14%) and the Italian FTSE MIB (+0.09%) are edging higher while the French CAC 40 (-0.54%) and the Spanish IBEX 35 (-0.71%) fall on Friday as the EU Summit is at its last day, looking for solutions for the bailed out countries and to agree on a bailout deal to Cyprus, also with talks of growth measures. In regard to Cyprus, “leaders are trying to limit the cost of the government bailout by putting some of that cost on to bank depositors so if they have reached this compromise there is at least some risk we have the Cyprus bailout announced today”, wrote TD Securities analyst Tim Davis.
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Forex: GBP/USD falters around 1.5155/60

The upside in the sterling is running out of steam in the area of 1.5155/60 on Friday, as the buying interest seems to be taking a breather....
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