By Dave Evans of Binary.com
Following the ECB’s big reveal over its Quantitative Easing programme, the euro has stabilised, but has never looked likely to stage a sustained recovery. One step forward has very quickly been followed by one step back.
EUR/USD Daily Chart
As the daily chart of the EUR/USD shows, the mini rally that followed the ECB announcement has been depressed by the uncertainty surrounding the Greek election results. Quite whether the ECB wants the EUR/USD to rally is unclear, as one of the main reasons for the ECB’s QE programme is to make the euro cheaper and therefore the Eurozone more competitive.
The fact that the euro hasn’t dropped further as a result of the Greek uncertainty is testament to either the market’s faith in the political process and expected resolution or a certain sangfroid attitude to Greece’s problems.
However you look at it, this week could be crucial for Greece and indeed the Eurozone as a whole. Tuesday sees a confidence vote on the new Tsipras government’s economic programme and will be followed by a Eurogroup meeting on Wednesday.
Greece continues to set its plans against the EU, principally refusing to discuss an extension of the Troika bailout. Equally important are the plans to slow or even reverse the market reforms laid out as a condition of the previous rounds of funding support. There are signs of pragmatism on the side of the Greeks though as they balance populist announcements with a view to their practical implementation.
The plan to raise the minimum wage has garnered many headlines, but this is seen as a largely symbolic act, with labour minister Panos Skourletis refusing to put any form of timetable on when this might be implemented. “We never said tomorrow” is a textbook piece of political hedging and you wonder how much of the Tsipras government’s positioning is political brinkmanship.
Indeed, most analysts are expecting a few rounds of chest beating before any real negotiations (or lack thereof) can start. Greece holds the trump card of knowing that a default or ejection from the Eurozone could see a ripple effect that impacts other troubled European regions.
What started as a financial crisis is now firmly a political crisis as Germany’s Angela Merkel acts with her country’s interests as a primary responsibility. This in itself exposes the main fault line running through the euro project.
The creation of a United States of Europe will never succeed unless individual nations can concede a greater European good over individual nations’ interests. Will Angel Merkel allow a solution that benefits the integrity of the EU over her own political standing? Unlikely, very unlikely.
There may well be a short term political compromise forged, but at some point there needs to be a reckoning over Greece.
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