© Michael Hewson
|
Irrespective of whether this agreement gets signed off or not, Greece still faces significant challenges to stay within the Euro area. First and foremost, one of the biggest problems is the question whether or not the bailout deal of 86 billion euros is enough, as I do not think the numbers actually reflect the enclosure in the economy for July.
Another problematic issue is a record low manufacturing PMI number reported the previous month. Furthermore, we still do not know how solvent the Greek banks are, and how many bad loans they are carrying at the moment. Moreover, the question of debt sustainability has not actually been addressed, while the involvement of the IMF in the debt pay-off is still uncertain.
However, the IMF wants debt sustainability, which essentially means that there needs to be some form of debt write-down. Germany is currently opposed to that, which will rather blaze the questions to whether or not the IMF will be involved in the bailout. Still, the vote for the new bailout needs to be approved by all the European parliaments and the Greek government.
All parliamentary and other procedures both in Greece and in some European parliaments have to be concluded and funds disbursed by August 20, when Greece has to make a €3.5 billion bond payment to the European Central Bank. What is your opinion, will Greece be able to cover the ECB payment without requesting further bridge financing?
I do not think Greece will be able to pay the debt without help, hence, this suggests that there will be some form of arrangement, in order to get over that particular funding obstacle. However, it would not solve the underlying problem of a substantial debt that the Greece's economy is facing. Moreover, some of the primary surpluses they are being asked to implement are predicated on the Greek economy recovery, yet, I do not see that happening.
What performance do you expect from the Euro versus its major counterparts in Q3 of 2015?
Overall, I do not see it is going to be very different from what we have seen in the past two to three months. Thus, I think a lot of the Euro's performance is predicated on how the Federal Reserve might act in September. There is a lot of speculation that the Fed may raise rates, however, I am not entirely convinced that they will.
What are your forecasts for EUR/USD, EUR/GBP and EUR/JPY for the same period?
I suppose we would see the EUR/USD heading towards 1.14, but I do not expect the pair falling too much below 1.08. Overall, I think the EUR/GBP will go back to roundabout 70 to 72.5, while the EUR/JPY currency pair will likely settle at around 132-140.