According to Nouriel Roubini, “Postponing the exit after the June election with a new government committed to a variant of the same failed policies (recessionary austerity and structural reforms) will not restore growth and competitiveness. Greece is stuck in a vicious cycle of insolvency, lost competitiveness, external deficits, and ever-deepening depression.."
What will happen to Greece and the eurozone in the near future?
Roubini: Europe Resembles Roller Coaster In Slow Motion
According to Mr. Roubini, the debt restructuring and multiple tranches seem to have resulted in Greece’s insolvency. The country is no longer capable of initiating economic recovery without restoring its competitiveness, which (in its turn) is impossible without devaluation. This means that the country’s debt will remain unstable.
A fast decline of the Euro is hardly probable, Roubini says. At the same time, Greece cannot stay in depression for 10 year, otherwise it will face major negative social-economic consequences.
Therefore, Nouriel Roubini assumes that the best (and the only rational) way out is to abandon the Euro and go back to the Drachma, with major devaluation, which will help to restore the country’s competitiveness and economic growth.
He realizes that this scenario will be painful for Greece and the entire eurozone as their financial institutions will suffer major losses. However, numerous countries followed this way in the past. For example, Argentina did it in 2001. The USA abandoned the Gold Standard in 1933, thus devaluing its currency by 69%.
This kind of “drachmatization” of the Greek issue is necessary and inevitable, Roubini says. The bank will be able to control their losses if there is efficient and correct recapitalization.
At the same time, other peripheral eurozone economies seem to be suffering from the same disease. For example, Portugal will most likely have to restructure its debt and to leave the eurozone as well. Spain and Italy also need external help.
Nouriel Roubini suggests using the eurozone and the IMF’s emergency funds (including, the EFSF and the ESM).
Euro Currency Prospects Amid Eurozone Crisis
experts report that major traders and investors stay risk-averse and prefer to wait till the next EU summit in Brussels. The European leaders are expected to work out new ways of resolving the crisis and restoring investors’ confidence.
According to the analytic team of Nord FX, France will urge Germany to support the emission of common Eurobonds. If this is the case, Italy, Spain and Ireland will definitely support the idea.
According to , EURUSD is forming wave A(С)/С of wave level Daily 2 started at 1,2824. If the downtrend continues, the major levels of support will be found at 1,2521; 1,2491 and 1,2397. Alternatively, the price may start a mid-term correction against the current downtrend. This will happen if the price breaks above the top of the MF sloping channel and MF pivot 1,2806. In order to confirm a trend reversal, the price will have to form a bullish FZR above the mentioned pivot.
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