A new chapter in the Euro sovereign debt saga is beginning to unfold, after the shared currency had its most severe weekly drop since late last year, and one of its worst two-day since its introduction. The free-fall, which commenced on Trichet's dovish comments in last Thursday's ECB meeting, was exacerbated after Germany's Der Spiegel reported an incendiary article, suggesting Greece may be planning an exit from the eurozone.
The line in the German media article that buttered the speculators’ bread and set the fire read: “Spiegel Online has obtained information from German government sources knowledgeable of the situation in Athens indicating that Papandreou’s government is considering abandoning the euro and reintroducing its own currency”.
The well-premeditated report, intended to raise a small storm by showing an undeniable truth on Greek's unsustainable situation, achieved with immaculate precision its goal of spooking the markets by turning focus in a desperate worst case scenario far worse than a debt restructure; the controversial report damaged investor's confidence by contemplating the possibility of a step-by-step dismantling of the Euro, beginning by Greece.
Amid the vigorous and extremely volatile “anti-Euro” reaction the markets had just hours before the closing bell in NY, a last-minute extraordinary meeting with Greek Finance Minister George Papaconstantinou and its European counterparts was set in Luxemburg, aimed at tackling the latest economic developments.
Once the meeting concluded last Friday, Greek Finance Minister briefed the media, saying: “the Greek government remains committed to the implementation of the agreed fiscal policy program”, sending a categorical message that Greece will never propose an actual exit from the Euro.
Abandoning the euro would have “catastrophic” consequences, public debt would double, consumer purchasing power would be “shattered” and the country would sink into a “war-like recession,” Mr. Papaconstantinou told Italian newspaper La Stampa, according to a Bloomberg report.
Luxembourg Prime Minister Jean-Claude Juncker, who chairs the group of euro-area finance ministers, said after the May 6 gathering: “We’re not discussing the exit of Greece from the euro area. This is a stupid idea - no way”. However, Mr. Juncker acknowledged: "We think that Greece does need a further adjustment programme”, adding: “"This has to be discussed in detail and will be taken up at the next Eurogroup meeting on May 16”.
Despite the reassuring words by EZ officials, new options were discussed in order to prevent the euro zone's first sovereign debt restructuring. Among the alternatives, loaning Greece more cash, pushing back Greece's budget targets or further lengthening maturities on existing debt. Over the weekend, an article from Bloomberg suggested that to expand the 110 billion-euro ($158 billion) lifeline Greece received last year, further collateral aid may be required.
At this point, credibility damage on the Euro stability has already been done, and the rammifications to put things back in order may be quite costly for Eurozone official. As Nick Edwards, economic correspondent for Reuters says: "The downside on the Spiegel article is that markets tend to take rumors as fact and denials now just won't be enough” the Analyst explains. “What they'll be looking for is real money and for Europe to come up with something that cools down the renewed uncertainty. They're going to want to see the check book out and proper funds being put into the system”.
From a technical perspective, “the speed of the current decline in EUR/USD is a sign that the entire upmove from the Jan 2011 low has likely ended” says Alexander Nikolov from Trend Recognition. That means, “the advance from Jan 2011 low has taken the form of a Double Zig-zag pattern. If correct, we can expect further decline here in the next several weeks twd 1.3720 and possibly even to 1.3520 level. On the upside, only a sustained move abv 1.4570 will negate the immediate selling pressure”.
Up to this point, despite official statements coming from the Luxembourg meeting made no mention of any Greek exit strategy from the Euro-zone, Asian markets have been so far reluctant to develop any meaningful EUR relief rally. The Spiegel article that led to the secretive meeting from Friday has certainly hurt the Euro outlook, as investors now fear the time has come to start dealing with the inevitable need of a new economic plan in Greece to avoid its default.
Source: http://www.fxstreet.com
The line in the German media article that buttered the speculators’ bread and set the fire read: “Spiegel Online has obtained information from German government sources knowledgeable of the situation in Athens indicating that Papandreou’s government is considering abandoning the euro and reintroducing its own currency”.
The well-premeditated report, intended to raise a small storm by showing an undeniable truth on Greek's unsustainable situation, achieved with immaculate precision its goal of spooking the markets by turning focus in a desperate worst case scenario far worse than a debt restructure; the controversial report damaged investor's confidence by contemplating the possibility of a step-by-step dismantling of the Euro, beginning by Greece.
Amid the vigorous and extremely volatile “anti-Euro” reaction the markets had just hours before the closing bell in NY, a last-minute extraordinary meeting with Greek Finance Minister George Papaconstantinou and its European counterparts was set in Luxemburg, aimed at tackling the latest economic developments.
Once the meeting concluded last Friday, Greek Finance Minister briefed the media, saying: “the Greek government remains committed to the implementation of the agreed fiscal policy program”, sending a categorical message that Greece will never propose an actual exit from the Euro.
Abandoning the euro would have “catastrophic” consequences, public debt would double, consumer purchasing power would be “shattered” and the country would sink into a “war-like recession,” Mr. Papaconstantinou told Italian newspaper La Stampa, according to a Bloomberg report.
Luxembourg Prime Minister Jean-Claude Juncker, who chairs the group of euro-area finance ministers, said after the May 6 gathering: “We’re not discussing the exit of Greece from the euro area. This is a stupid idea - no way”. However, Mr. Juncker acknowledged: "We think that Greece does need a further adjustment programme”, adding: “"This has to be discussed in detail and will be taken up at the next Eurogroup meeting on May 16”.
Despite the reassuring words by EZ officials, new options were discussed in order to prevent the euro zone's first sovereign debt restructuring. Among the alternatives, loaning Greece more cash, pushing back Greece's budget targets or further lengthening maturities on existing debt. Over the weekend, an article from Bloomberg suggested that to expand the 110 billion-euro ($158 billion) lifeline Greece received last year, further collateral aid may be required.
At this point, credibility damage on the Euro stability has already been done, and the rammifications to put things back in order may be quite costly for Eurozone official. As Nick Edwards, economic correspondent for Reuters says: "The downside on the Spiegel article is that markets tend to take rumors as fact and denials now just won't be enough” the Analyst explains. “What they'll be looking for is real money and for Europe to come up with something that cools down the renewed uncertainty. They're going to want to see the check book out and proper funds being put into the system”.
From a technical perspective, “the speed of the current decline in EUR/USD is a sign that the entire upmove from the Jan 2011 low has likely ended” says Alexander Nikolov from Trend Recognition. That means, “the advance from Jan 2011 low has taken the form of a Double Zig-zag pattern. If correct, we can expect further decline here in the next several weeks twd 1.3720 and possibly even to 1.3520 level. On the upside, only a sustained move abv 1.4570 will negate the immediate selling pressure”.
Up to this point, despite official statements coming from the Luxembourg meeting made no mention of any Greek exit strategy from the Euro-zone, Asian markets have been so far reluctant to develop any meaningful EUR relief rally. The Spiegel article that led to the secretive meeting from Friday has certainly hurt the Euro outlook, as investors now fear the time has come to start dealing with the inevitable need of a new economic plan in Greece to avoid its default.
Source: http://www.fxstreet.com
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