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Actually, there are two possible ways. One reaction would be - if Greece left the Eurozone, the Eurozone would become more stable. The problem would be solved having a positive impact on the Eurozone's economy, because the weakest country left. The other reaction is obviously that if European politicians did not succeed to save Greece, to make sure that the country stays within the Eurozone (they have been trying to do so for more than two years), they would not be able to help Italy or Spain as well. That would be a negative outlook.I think it is a good idea to look at capital flight in Italy and Spain. Currently we see a very strong capital flight out of these countries and that obviously shows that markets would rather adopt the negative use. The Euro should come under pressure and lose some ground. As I have already said, there are two possibilities, but it is rather likely, if we look at market sentiment, that the second one would be the actual outcome.
What if Greece does not exit the Euro bloc, what will happen to the Eurozone then?
If Greece does not get new funds, they actually have to leave. It is pretty clear that a country cannot be thrown out of the Eurozone. If the Greeks do not receive further help, we are going to face a sovereign default and that would mean that banking system and pension funds are in default. Greece would need to recapitalize their own banking system. It can only be done with their own currency. In this case they would have to leave the Eurozone.
The other possibility is that Greece receives further help. This very much depends on the outcome of the forming a new government. We know that so far European politicians always send more money, even when commitments are not fully fulfilled and plans are behind the schedule. We could imagine that if Greece does not stick to all the austerity measures, they still might get some help. This depends on the way they do it.
If Greece lawmakers openly say that they do not stick to the austerity measures, then it would be pretty hard for the donor countries to provide more funds, because they have to explain to their own taxpayers as well. It pretty much depends also on the political situation in Greece, which is pretty hard to predict.
What is your EUR/USD outlook for the end of this year?
So far for the end of this year we have got EUR/USD forecast of 1.29. This is a level at which we are currently trading, but this is under the main scenario that the problem in Greece will be solved somehow at least for the time being. If it really comes to Greece's exit, obviously we would have to change this forecast and put it at the lower rate.