© Michael Hewson
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I suppose it really depends on how you define term "manageable" in this particular matter. We have heard an awful lot about European policy makers saying the Euro is irreversible, yet at the same time they are talking about Grexit being manageable, even though these two statements are completely contradictory. I am not sure whether the effects of the potential Greek exit from the Euro zone are feasible, due to the fact that if you suggest that Greece can exit, then why not to expect the same move from Italy, Spain or Portugal?
The fact of the matter is, Greece is already insolvent and the only thing keeping it from going into bankruptcy is support from the ECB. At the same time their debt is unmanageable, therefore, the two parties will have to come to some form of agreement about the debt, and really it is just a question of the way that they get to that agreement. There is no doubt that a Grexit is a black swan event. To be honest, I do not think there is any sort of credible way that you can predict what could happen in the event that it took place. The outcome still would be fairly expensive, but what is the count of actual at the end of the day, as Greece stays in, it will still need an enormous amount of money to keep things on the same track.
It is unclear how any state could be kicked out of the single currency. So far, there was no legal mechanism for doing it. However, if the problems of the Euro zone do become acute once more would that provoke bigger economic uncertainty on the Continent?
I believe this situation might provoke certain worries across the Euro zone countries, and it would be right to say the position is fairly acute already. If you look on the unemployment rate in countries like Spain, Greece and Portugal at the moment, the things that will impact the direction of Euro going forward will be rather political than economic. At the moment we are getting the rise of what I would call "extremist parties" since the population of Southern countries does not feel their politicians are listening to what they have to say. Therefore, until the officials start to understand the problems tied to a single currency under the German monetary policy, all you are going to get is more of the same.
Hence, in essence, it will be extremely difficult for those economies, as they deal with the amount of debt and the banking system issues. Despite the stress tests last year, banks in Europe still do not feel confident enough to lend, and thus there is no demand.
Alongside the general elections in Greece and the ECB press conference on 22 of January, what else could affect the behavior of Euro in the foreseeable future?
We do have a number of elections this year, namely in Portugal and Spain. Therefore, the outcomes of these elections will likely influence how the Euro moves. Also what will determine how the Euro moves is how long and big the stimulus program is. Finally, one factor outside of the currency influence is whether or not the Fed decides to raise rates this year.