Is the Euro Crisis Over?

Monday, February 27, 2012

Is the Euro Crisis Over?

This is a question posed to the dealers at Halo Financial every day and the short, sweet and empathic answer is NO. That is not to say the euro is definitely on a downward path but the latest agreement to provide Greece with another €130 billion of support is very definitely not the end of the problem.

Their problems are as much to do with the politics of the situation as they are to do with the economics. That is perhaps fitting, given that the euro has always been more of a political project than anything to do with finances but the euro reached its 13th birthday at the start of the year and we all know what teenagers are like.

The next stage in the eurozone survival plan is the proposed creation of a large and flexible fund which will be waved at the financial markets to ward off those who would threaten the euro. The G20 meeting over the last weekend of February saw EU finance ministers produce their begging bowls to the International Monetary Fund (IMF) and others but meet with short shrift. The head of the IMF suggested they need to raise funds within the eurozone as this is a eurozone problem and the British Chancellor is quoted as saying, “We have to see the colour of the eurozone's money first - and, quite frankly, that hasn't happened. Until it does, there's no question of extra IMF money from Britain or probably anyone else".

So if the leaders of the rest of the world aren't going to arrive on white stallions distributing dollars, yen and sterling to those in need, where is the money going to come from to create this 'firewall' fund?

Germany is the obvious first port of call but German Chancellor, Angela Merkel is being assailed from within. Her coalition partners and many in her own party have reached tipping point over the size of Germany's commitment to maintaining the euro in its present form. With elections not far away, there is a strong chance that any further pouring of German taxpayers' funds into Greek coffers would unseat Chancellor Merkel and change the nature of the German government. With a debt-averse government in place, there is little likelihood that further funds would be made available at all and with the threat of an electoral disaster, Chancellor Merkel is unlikely to want to put her neck on the line.

France too is feeling the strain. Having presided over France seeing their sovereign debt rating downgraded from AAA status, French president Nicolas Sarkozy is not likely to be keen to commit immense amounts of French funds to a potentially poor financial commitment. He too is struggling to build a case for re-election and this is the last thing he will want to put to Monsieur and Madam Public.

Perhaps the funds could come from the European Central Bank (ECB) but the rules of the EU do not permit this kind of funding from the ECB. They have sneaked around this rule by offering very low interest rate loans to banks around Europe, knowing full well those funds would be used to buy bonds in troubled economies like Spain, Italy, Portugal and even Greece but when EU leaders are seeking upwards of €750 billion for their 'firewall' the ECB is not likely to be the source.

No one knows what the answer is to this quandary and there is no obvious source for the funds that the EU sees as essential to avoid another Greek style default. Without that certainty, the potential exists for another drop in the value of the euro at any time and that is precisely what everyone trying to buy a European property needs to see.

In spite of this apparent impasse, in the short to medium term, there seems every chance that the eurozone will survive even if one or more of the member states decides to exit. Whether that happens or not, what is certain is that we are still in a period of significant volatility and that means there are bound to be opportunities to save money through effective transaction timing.

As has always been the way with those trading in foreign currencies or any other commodity, if you manage the risk of the worst case scenario, you are well placed to take advantage of the best possible outcome.

Halo Financial are the official currency partner of A Place in the Sun. To find out how Halo Financial can help you save money when buying or selling an overseas property visit their website.





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A Place In The Sun