It has been 2 and a half years since Europe’s debt crisis erupted in Greece, but as authorities in Athens continue to struggle to form a government the country’s exit from the Euro is becoming increasingly likely.
The EU maintains it wants to keep Greece in the Single Currency, although today’s front page headline of Germany’s most influential magazine, Der Spiegel, read “Acropolis, Adieu! Why Greece must leave the Euro” indicating Germany is coming to terms with a possible departure (by their own admission, they can’t force Greece to remain within the member state). Opinion polls suggest the majority of Greeks want the same thing – yet they continue to vote for anti-bailout parties.
The fact is Greece is broke; a report last week by Bank of America Merrill Lynch claimed the country would run out of money by early July should creditors decide to withhold their next aid payment. Even if the next bailout is granted, any elected Greek government would need to propose new medium-term austerity measures and demonstrate savings of €11 billion next month!
So what if they do leave? A Greek departure is likely to cause worry amongst investors of withdrawal by other member states…..mocking a monetary union that by design was supposed to be irreversible. Bond yields will soar (Spain’s 10yr bond yield is already well above 6%) and the Euro is likely to come under further pressure. EURUSD moved below $1.30 last week for the first time since January and EURGBP hit a 4 year low, testing 0.8000.
These are very uncertain times for Greece and indeed the Eurozone as a whole.