Good morning. The uncertainty over the Greek referendum continues. Quite expectedly Greece finds itself cornered on the global front, with voices of dissent being heard within Greece as well. One of the key reasons for Greek Prime Minister George Papandreou torpedoing the bail-out scheme is of-course arm-twisting the Greeks into accepting more austerity measures before the next round of bail-out tranches of the €130 billion agreed last week starts reaching Athens.
However, there’s a small group of people in Greece, including economists, who believe that Greece should quit the EU. They want Greece to get the lever of sovereign money printing machine back in Athens. Some leading world economists have argued, including Nobel laureate Nouriel Roubini, that Greece can never become competitive if it continues in the EU. The Greek currency – the drachma, may see sharp devaluation if Athens choose to leave the EU, but will help the country’s exports, thus boosting the economy. Well, this will happen only if Greece is an export surplus nation – i.e., its exports are greater than imports. Secondly, a devaluated currency will certainly stoke inflation. And, quitting the EU also means possible forfeiture of certain facilities, especially the 50 per cent write-downs on public debts. The country has about $500 billion in outstanding debt. Creditors may start acquiring the country’s assets after a disorderly default.
Meanwhile, a German expert termed the Greek referendum illegal. “No eurozone member state can unilaterally decide to give up the euro,” said Professor Helmut Siekmann of the Frankfurt’s Goethe University. “Such a step is illegal in European law, to guarantee the stability of the currency. Alternatively Greece could leave the EU entirely.”
The tentative date for the bail-out vote has been set December 4. France and Germany have announced that no money will be released till there’s some certainty over Greece’s next move. “We said clearly to the Greek authorities that the EU, like the IMF cannot envisage paying the sixth tranche until Greece has adopted the package and all uncertainty has been lifted. We cannot commit the money of taxpayers … until the rules that were agreed on October 27 are respected. Without that, neither Europe nor the IMF can pay a single cent,” said French President Nicholas Sarkorzy.
CURRENCY RATES OVERVIEW
GBP/EURO – 1.1615
GBP/US$ – 1.5902
GBP/CHF – 1.4119
GBP/CAN$ – 1.6219
GBP/AUS$ – 1.5561
GBP/ZAR – 12.8182
GBP/JPY – 124.12
GBP/HKD – 12.3564
GBP/NZD – 2.0268
GBP/SEK – 10.5971
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EURO: The GBP/EUR pair however, failed to clip the 1.17 level yesterday.
USD: The greenback made marginal gains against major global currencies as the Fed’s latest FOMC statement was negative in its tone. Though no QE3 is required immediately, it remains an option going forward. Sterling made some progress against the greenback yesterday over more positive news coming from the construction sector. Building activity expanded against an expected contraction. Service sector activity data is expected later today
The GBP/USD pair lost some ground as risk aversion is back and ended the day at 1.5902.
Elsewhere, the Scandinavian currencies were battered as speculations of the Euro breaking down gained traction. The Antipodean currencies – the AUD and the NZD, continued their downward journey against the cable and the greenback as risk remains off the table.
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Have a great day!
