Euro zone inertia puts focus on China data drop
By Mike Peacock
LONDON (Reuters) - Impatience at the slow pace of euro zone crisis action is bubbling over, with the European Central Bank's pledge to save the single currency yet to be backed up by action.
Any hopes that a European Union leaders' summit in the coming week will break the logjam are likely to be forlorn, leaving the focus firmly on a slew of data from China and the onset of the U.S. company earnings season.
The ECB's promise to buy the bonds of struggling euro zone countries has been left hanging by Spain's hesitation over seeking outside help.
If investor frustration translates into upward pressure on Italian and Spanish borrowing costs, that could be the tipping point that pushes Madrid to ask the euro rescue fund for assistance. But so far, ECB chief Mario Draghi has been taken on trust; Spanish bond yields have only nudged up.
"Lower yields have diminished the pressure to act in the short-term. But we suspect that after regional (Spanish) elections on October 21 and the EU summit, Madrid will probably have to clarify its position once and for all," said Juergen Michels, euro zone economist at Citi.
The International Monetary Fund's annual meeting in Tokyo displayed barely concealed irritation. The Fund said the bloc remained under threat from "a downward spiral of capital flight, breakup fears and economic decline" and called for rapid action to deepen financial and fiscal union.
EU paymaster Germany pushed back and the Brussels summit looks too early for dramatic action.
The EU/IMF/ECB troika of inspectors continues to pore over Greece's parlous balance sheet and will not report back until next month and Spanish regional elections next weekend offer a powerful reason for Prime Minister Mariano Rajoy to defer any request for aid for a while longer. Continued...