IMF Now Own 74% Of Greece €274Billion Debt

IMF Now Own 74% Of Greece €274Billion Debt

Good morning and welcome to today’s foreign exchange market commentary on Monday, the 21th of May.

Now that the endgame over Greece has started, the question that begs answer is what is the future of the eurozone? Obviously the current strategy isn’t working. Many analysts argue for better political, fiscal and banking union. However, a United States of Europe may not be a sound political and economic proposition. Rather maximum sovereignty should be allowed consistent with a common currency.

The supporters of greater integration argue that it will not only save future events, it will also solve the current one. The introduction of the so-called euro-bond and guarantees for the region’s banks are two of the proposals being mooted. The governments and the banks in return will adhere to strict centralized disciplines. But Europe is not ready for such a treaty as demonstrated by therise of Italy’s Beppe Grillo and France’s Marine La Pen.

A forced union may not go down well with the rich north since they may see this as an attempt to set up permanent bailout funds for the laggard south. In contrast, the Maastricht Treaty’s “subsidiarity” principle may be more palatable, where competent governments take decisions at appropriate levels, resulting in both good economics and good politics.
One of the biggest mistakes were bailing out Greece rather than letting them default. If Greece had defaulted, private investors would have taken the hit. Because of repeated bailouts, the governments and the IMF now own 74 percent of Greece’s €274 billion debt. When Greek defaults eventually, it’s the taxpayers who would bear the brunt. True, banks would have taken a hit if Greece were not bailed out, but the effect would have been short-term unlike the present long drawn banking cum sovereign debt crisis.

CURRENCY RATES OVERVIEW

GBP/EURO – 1.2372
GBP/US$ – 1.5803
GBP/CHF – 1.4861
GBP/CAN$ – 1.6101
GBP/AUS$ – 1.6061
GBP/ZAR – 13.109
GBP/JPY – 125.41
GBP/HKD – 12.2768
GBP/NZD – 2.0881
GBP/SEK – 11.261

EUR: The single currency finished the week off its lows on Friday amid cautious optimism ahead of the G8 meeting in US and weekly position squaring by investors, with the GBP/EUR falling to 1.2378 from its multi-year highs. The GBP also lost some sheen after MPC member Adam Posen said his call to halt further quantitative easing may be premature. The single currency continues to be under pressure as the G8 meeting over the weekend failed to produce any breakthrough. The EU summit on Wednesday and eurozone PMIs on Thursday will guide the single-currency’s fate and developments in the interim will decide its movement. GBP/EUR opens at 1.2383 this morning.

USD: The cable closes at a two-month low of 1.5732 against the euro on Friday capping off three straight weeks of decline as investors sought refuge in the safe haven greenback. Sterling rose to a high of 1.5837 late in the day, possibly due to the intervention of the central bank. With no economic news coming out from Europe on Friday, the focus remained on EU developments, particularly on Spain. Worried UK customers of Spain’s most high profile bank Banco Santander, withdrew £200 million in deposits on Friday, raising questions of UK’s immunity to EU developments. The minutes from the last MPC meeting of the BoE is due this week, putting the focus back on the central bank. Also UK inflation and retail sales data are expected this week. The GBP/USD pair opens at 1.5830 this morning.

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