27 Jun 2012

EU summit must address euro zone debt - economist

6:59 am on 27 June 2012

A currency strategist says a failure to find a resolution to the euro zone debt crisis at the European Union summit this week could have a serious effect on the New Zealand markets.

The June 28-29 European Union summit will discuss a cross-border banking union, closer fiscal integration and a possible debt redemption fund, though Germany is resisting efforts to pool Europe's debt.

The BBC reports that fears are building that the two-day summit could prove inconclusive.

Westpac currency strategist Imre Speizer says the markets are looking for something specific from the summit in the form of a plan for closer fiscal union.

He says if the leaders deliver, high risk currencies such as the New Zealand dollar and interest rates will rise but if the response is vague, global markets will react badly and push risk assets and risky currencies lower.

"The first thing it would hit would be just global market financial confidence, so you'd see equity markets tumble.

"You would see core interest rates fall, so those in the US and say, Australia and Canada and New Zealand, those interest rates would fall. And in line with the fall in equity markets, risky currencies like the kiwi and the aussie and the euro, they would fall significantly."

Mr Speizer says billionaire currency trader George Soros is sending a message to European policy makers when he says failure to find a resolution would be fatal.