EU Summit Produces Economic Appetizer
The markets were starving for some positive news, optimism ran high yesterday in hopes the EU Summit in Brussels would produce the required substance to restore confidence in the markets.
In the mining sector, some significant rallies occurred while the heads of Europe prepared for dinner.
Shares of Geologix Explorations (Stock Profile - TSX:GIX) rallied from $0.23 to $0.295 (22.0%) while Northern Graphite (Stock Profile - TSXV:NGC & OTCBB:NGPHF) made a strong move from a low of $1.32 to $1.58 (16.5%). MAG Silver (Stock Profile - TSX:MAG & AMEX:MVG ) was up nearly $1 per share to close the day at $8.14.
From that informal dinner meeting - three main growth initiatives are being considered by the European Union. These initiatives are expected to compliment a fiscal treaty that aims to enforce stricter debt and deficit rules which is expected to be implemented in January next year.
EU PROJECT BONDS
Under a proposal by the European Commission, the European Union would back debt issued by the managers of infrastructure projects as a way of attracting investors to finance cross-border transport, energy and communication projects.
A pilot project phase is expected to run over this year and next, using 230 million euros from the EU's budget as collateral and combining that with guarantees from the European Investment Bank (EIB).
Established in 1958 under the Treaty of Rome, the EIB is owned by the Member States of the European Union who subscribe to the Bank's capital. As shareholders, the Member States are represented on the Bank's main independent decision-making bodies (Board of Governors and the Board of Directors) and is considered to be a policy-driven long-term lending operation.
BOOSTING THE EIB
Leaders will discuss a plan to increase the EIB's paid-in capital by 10 billion euros. According to a proposal made by the European Commission, the move could increase potential lending by 60 billion euros and ultimately deliver extra investment of up to 180 billion euros (multiplier effect).
It is worth noting that additional capital would fall hardest on its top shareholders. France, Italy, Britain and Germany would be expected to pledge about two-thirds of the total cash (roughly 230 billion euros).
REDIRECTING STRUCTURAL FUNDS
Leaders are looking to make use of the 82 billion euros in EU development aid that has not yet been allocated to specific projects for the 2007-2013 period.
Effectively, the Brussels meeting produced an economic appetizer but there was no main course. During a televised interview on Bloomberg Television, Callum Henderson, global head of currency research at Standard Chartered in Singapore said, “The summit as a whole was very troubling. While they talked, they did absolutely nothing. Probably the best analogy for that informal dinner that they had is fiddling while Rome burns, or indeed Athens burns.” Sound familiar?
For an excellent interactive "European Crisis Map" developed by CNN's Mark Barringer - CLICK HERE.