Greek Crisis Rumbles on for Euro as Single Currency Starts Devaluation
Global financial services provider Morgan Stanley has predicted a devaluation of the euro against all other currencies as “Greece’s budget crisis calls into question the currency’s credibility and the ability of European Union institutions to address deficits.”
“The euro is coming increasingly under pressure from the ongoing events in Greece,” Emma Lawson, a foreign-exchange strategist at Morgan Stanley in London, wrote in a research report just released.
“It boils down to credibility: The credibility of the Greek government in meeting their targets, the credibility of the EU institutions to deal with non-compliant states and the credibility of the euro itself.”
The euro — endorsed by 16 European nations — fell for a sixth day against the US Dollar in the ongoing crisis.
The question is whether the European Union can force a rogue member with a weak economy to take drastic measures to cut its budget deficit without calling in the International Monetary Fund (IMF) or sparking social unrest.
Across Europe, there is concern that serious fiscal problems in Greece could threaten the credibility of the Eurozone and set off similar debt crises in other weak European economies.
“The Greece example is putting us under great, great pressures,” German Chancellor Angela Merkel told AFP. “The euro is in a very difficult phase for the coming years.”
Like any other major currency, support for the euro relies on fiscal responsibility. But, unlike any other major currency, the euro is issued by 16 autonomous countries largely beyond the reach of European Union rules.
In other words, if any individual member such as Greece wants to run up debts that threaten its credit rating, Eurozone members have very little recourse.
“Who is supposed to tell the Greek parliament that it needs to carry out pension reform?” Merkel said at a recent meeting, according to The Wall Street Journal.
The Greek government will submit a new three-year fiscal plan to the European Commission this month and EU finance ministers could issue an ultimatum in mid-February giving Greece four months to take corrective action or face sanctions.
One solution to resolve the whole issue would be to revoke Greece’s EU membership. But such a drastic measure could put the euro itself at risk and was quickly ruled out by European Central Bank President Jean-Claude Trichet, who called the notion “absurd” when he was questioned on the matter last week.
Former IMF and Wall Street analyst Desmond Lachman, writing in the Financial Times last week, predicted a bloody end: “Much like Argentina a decade ago, Greece is approaching the final stages of its currency arrangement. After much official money is thrown its way, Greece’s euro membership will end with a bang.”
Global financial services provider Morgan Stanley has predicted a devaluation of the euro against all other currencies as “Greece’s budget crisis calls into question the currency’s credibility and the ability of European Union institutions to address deficits.”
“The euro is coming increasingly under pressure from the ongoing events in Greece,” Emma Lawson, a foreign-exchange strategist at Morgan Stanley in London, wrote in a research report just released.
“It boils down to credibility: The credibility of the Greek government in meeting their targets, the credibility of the EU institutions to deal with non-compliant states and the credibility of the euro itself.”
The euro — endorsed by 16 European nations — fell for a sixth day against the US Dollar in the ongoing crisis.
The question is whether the European Union can force a rogue member with a weak economy to take drastic measures to cut its budget deficit without calling in the International Monetary Fund (IMF) or sparking social unrest.
Across Europe, there is concern that serious fiscal problems in Greece could threaten the credibility of the Eurozone and set off similar debt crises in other weak European economies.
“The Greece example is putting us under great, great pressures,” German Chancellor Angela Merkel told AFP. “The euro is in a very difficult phase for the coming years.”
Like any other major currency, support for the euro relies on fiscal responsibility. But, unlike any other major currency, the euro is issued by 16 autonomous countries largely beyond the reach of European Union rules.
In other words, if any individual member such as Greece wants to run up debts that threaten its credit rating, Eurozone members have very little recourse.
“Who is supposed to tell the Greek parliament that it needs to carry out pension reform?” Merkel said at a recent meeting, according to The Wall Street Journal.
The Greek government will submit a new three-year fiscal plan to the European Commission this month and EU finance ministers could issue an ultimatum in mid-February giving Greece four months to take corrective action or face sanctions.
One solution to resolve the whole issue would be to revoke Greece’s EU membership. But such a drastic measure could put the euro itself at risk and was quickly ruled out by European Central Bank President Jean-Claude Trichet, who called the notion “absurd” when he was questioned on the matter last week.
Former IMF and Wall Street analyst Desmond Lachman, writing in the Financial Times last week, predicted a bloody end: “Much like Argentina a decade ago, Greece is approaching the final stages of its currency arrangement. After much official money is thrown its way, Greece’s euro membership will end with a bang.”