The Euro conundrum

As most of you are probably well aware, the Euro has recently become under immense pressure due to Greece's huge 12.7% budget deficit.

Now at the moment there are many talks about what to do with Greece. The two main proposals are either to simply provide government aid or to revoke the country's membership from the European Monetary Union, which seems to me to be a very drastic measure.
The European Maastricht contract has a 'no bail-out' clause, stating that fellow EU countries are not allowed to provide financial support for struggling countries. This is probably not going to hold anyway, as I am pretty sure that Greece will not be excluded by the EU committee and will receive in some form or other financial aid. Until then however, the situation will remain unstable.

The reason why everybody is getting a little tense is due to the fact that many European banks are exposed in Greece. German banks alone have over 30 bn. Euros exposure. The four PIGS all together (Portugal, Italy, Greece, Spain) have over $ 1100 bn. debt with other European banks. A possible default scenario would cause a new chain reaction and put more pressure on banks and governments. Although Personally I don't think we will come to that point, but I do believe that the Euro will suffer over the next 3 - 6 months.


We have seen a continued strength of the Dollar against the Euro and very encouraging figures from the U.S. economy in terms of growth and unemployment rates. I also mentioned in a previous post that U.S. factory payrolls picked up for the first time since 2007. The manufacturing rebound probably accelerated in January and homebuilding bounced back too. According to the median estimate of 65 economists surveyed by Bloomberg News, production climbed 0.8 percent last month, the biggest gain since August. Europe’s recovery almost stalled in the fourth quarter as waning spending and investment in Germany unexpectedly brought growth in the region’s largest economy to a halt.
Looking at the 1 year Eur/USD chart I can't see any sign of a turnaround in the next months. And by the way things are going, I don't think Greece will be the only country to announce problems with a rising deficit!
I would definitely jump on the occasion and go short on the EUR/USD.