Euro at Two Week Low vs. Dollar
The euro traded near a two week low vs. the dollar even after European Central Bank President Jean- Claude Trichet said that default was “not an issue” for Greece. The euro had made slight gains earlier after Greece reported that the nation’s first quarter deficit fell. Vassili Serebriakov of Wells Fargo & Co. in New York stated, “Comments from Trichet had an impact on the euro. While the situation in Greece is not getting much better, I don’t see much scope for it to get worse. We’re seeing no immediate reasons for a break to the downside.” Trichet said that Greece will not default and will not need aid from the EU. The ECB left rates at 1%. The already troubled euro has been pressured by a news report that said the Athens government wanted to renegotiate last month’s EU IMF agreement.
Bond Spreads Pressure Greece
The Athens government denied the report and Tuesday the spread between Greek and German bonds was in excess of 4%, the largest since the Euro’s launch. Euro sentiment was further damaged after a news report that said that Greek banks have asked permission to access funds from a Greek aid package agreed to in 2008. Stuart Bennett of Credit Agricole said, “Renewed uncertainty over Greece is hurting an already jittery euro. Even though the market is already heavily short of euro, there is still downside risk.”Greek debt concerns and concerns that the crisis could spread to other EU nations have caused the euro to decline about 10% from January’s high of $1.4582. Also damaging the euro is a dearth of details about last month’s EU IMF agreement. Fitch rating agency senior Greece analyst Chris Pryce said that the Greek government’s only choice is to ask for help. Pryce stated, “Despite everything the EU and the euro zone have done there is still a lack of clarity (and) confusion about what they intend to do, when they intend do it and how much would be involved, It is now up to the Greek government to go publicly to the EU and IMF and ask for the cash and the support.”
Greece Prefers Market Based Solutions
The Athens government has promised to cut Greece’s debt to 8.7% of Gross Domestic Product this year but remains cautious that budget cuts could spark social unrest. Greece has been plagued by strikes, protests and riots since last year. At the present time the Athens government says it prefers to borrow from markets and will use the EU IMF agreement as a last resort. Government spokesman George Petalotis stated, “For the time being it is not necessary to activate the aid mechanism. The EU/IMF safety net is there to guarantee that Greece is not alone.”
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