ECB rate cut a boost to investor confidence

ON ASSET ALLOCATION

Financial markets have been rising and falling as the European Monetary Union has looked more or less likely to survive.

Rightly so, as the EMU zone is big enough – six or seven times the size of the UK in terms of output and population – to shift global growth. The EMU authorities, after violent swings in the prices of their bonds and bank shares, at last are showing realism in the numbers they announce: sovereign bond investors will recover the historical average of 50% when countries such as Greece default; EMU banks must hold tier-one capital of around 10% against loans as do the Asians and Americans; and Europe’s banking system backstop will increase to $1.4 trn, the same as additions to the US centra...