From the March 01, 2010 issue of Futures Magazine • Subscribe!

Euro's Greek tragedy

The economic meltdown of Greece sunk the euro in early 2010, and the currency’s recovery now hinges on a Greek bailout. Proposals to aid Greece were still being rumored and negotiated as of press time, including talk of help coming from Germany.

Kathy Lien, director of currency research at GFT, says the only possibility is for Germany to bail out Greece through one of its local banks, which would require a Parliamentary vote.

“Do the Europeans want to step in to relieve investor fears or do they want to take the risk and moral hazard that would involve using public money to bail out another nation? That’s the struggle the Eurozone is facing now, and until this problem is resolved, the euro will remain under pressure,” Lien says.

“Germany is leading the charge to nip this in the bud and prevent a full-scale speculative onslaught against the euro,” says Brian Dolan, chief currency strategist at Forex.com. “We’re likely to be entering a messy fourth wave of consolidation through March. I’d look for more of an upward bias to the euro, but unless we break below 1.35, we’re likely to see consolidation. I’d look for something around 1.39 to 1.40 in March.”

Lien says that for the PIG nations (Portugal, Ireland and Greece) to rein in their deficits, they need to cut spending and raise taxes and that will harm the entire European economy. “[The euro’s] going to have a tough time breaking above 1.40 [in March] unless the (EU) bails out Greece,” she says.

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