A few months ago any talk about the possibility of Greece's withdrawal from the eurozone was a taboo. Only independent experts and analysts could discuss it. But everything has changed. More and more opposing politicians and common people want Greece out of the eurozone.
For example, Christian Linder, general secretary of Free Democratic Party of Germany, promises to live Angela Merkel’ c coalition if she keeps backing Greece, allowing it to stay in the eurozone at the expense of German taxpayers. While Austria’s government supports Greece, according to Krone, 93% of the Austrians want Greece to leave the currency union.
2 years after the creation of the eurozone Greece fulfilled all the requirements of the Maastricht treaty and in 2001 entered the eurozone. 10 years later it may well become the first rogue member of the eurozone. If Greece is ultimately expelled from the eurozone, it will face a disaster. A return back to the Drachma will automatically double Greece’s public debt and will make the country go bankrupt.
Are there any benefits for the eurozone itself to expel one of its members? What should investors get ready for?
According to the West European Association of traders and Investors under , the EU has spent too much effort and money on Greece to expel it. Such a step would mean a huge loss:
· The 1st loan - May 2010 - € 110B
· The 2nd loan - July 2011 - € 109B
· Private investors are expected to lend € 50B more
· A lot of European banks, including BNP Parisbas, Sociéte Général, Crédit Agricole, have already spent a lot of money on Greece-T-bonds.
It is said that lenders may lose 65-80% on Greek bonds.
Indeed, Greece is the weakest link of the eurozone chain: Since the beginning of the global crisis the country’s national economy has shrunk by 8%, the public debt has already exceeded 140% of the GDP. According to the head of TF Market Advisors, the probability of a Greek default within the next 5 years is 98%.
Is Greece a burden to the eurozone?
According to the analytic team of NordFX, the international community doesn’t see Greece doing its best to combat its debt crisis:
EU/ECB/IMF mission. In early September the mission suspended the talks and left Athens because the Greek authorities had failed to meet all the conditions for the next tranche of emergency loans.
Greece’s weakness. Finland, Netherlands, Austria and Slovakia demanded a pledge for another loan, which means they do not trust Athens.
Greece’s decision. It seems like the Greek authorities themselves haven’t decided yet whether to stay in the eurozone or to leave it. Moreover, the population opposes the implemented austerity measures.
It is obvious, that without Greece the eurozone could be more stable, confident and reliable. Those who want Greece out of the eurozone say that the Greek authorities waste the money they get as financial aid. So it is better to support other eurozone economies, first of all Italy and Spain .
Domino effect?
According to the experts of , those who support Greece and want it to stay in the eurozone are afraid that once Greece leaves the currency union, it may cause a lot of problems. This is what the defenders of Greece say:
· Despite the local opposition, the Greek government keeps fulfilling the austerity plan to save Greece, including tax hikes, spending cuts and privatization. The authorities are planning to earn €50B from selling public property and €28B form numerous social spending cuts.
· Markets and investors are sensitive about any info from the eurozone. The common currency gains on positive news and loses on negative news. Nobody is able to predict what is going to happen if one of the eurozone members is expelled.
· Angela Merkel is sure that the exclusion of Greece will provoke the so-called “domino effect”, thus threatening the entire eurozone.
· This will probably cause the outflow of investments for the eurozone’s peripheral states. Such a banking crisis will inevitably grow in to a financial crisis, with putting other eurozone economies under pressure.
· New problems in Greece will automatically affect global markets and may even cause another wave of the global crisis.
That is why Nikolas Sarkozy and Angela Merkel are so determined to leave Greece in the eurozone.
EUR index: prospects
According to the Department of Masterforex-V trading system , , the EUR index has formed a downswing – wave a(C ) or shortened C of Daily/Weekly. The further succession of events in long-term perspective will depend on the upward retracement that is currently being formed. If the price fails to break above the MF pivot and sloping channel (as shown below), the index will probably continue its long-term downtrend with a strong downswing – wave C of Daily/Weekly. Otherwise the bearish ABC pattern will be completed and the price will initiate a major upswing.
Market Leader and would appreciate it if you could participate in a survey. Please, visit the Academy’s forum for traders and investors and answer the following questions:
Will the eurozone and the common currency survive? Is Greece a reall burden to the eurozone?
