Greece crisis forex

How the Greek Crisis Has Affected the Euro.

As the common currency of 19 out of the 28 member states of the European Union, the euro can be affected by various factors in relation to each of these countries. Developments in Greece, however, (whether political elections or discussions of the Greek debt and its accompanying austerity measures) seem to have had a particular impact on the value of the currency in recent weeks. But how direct is the correlation between news coming out of Greece and the swings of the EUR on the forex charts? Are the markets becoming jaded with all the news related to a potential Grexit, or are investors still worried about the adverse effects the Greek crisis might have on the overall health of the EUR? FXTM Chief Market Analyst Jameel Ahmad takes a look at the EURUSD movements over the past month to try and find out.

January 22: With anti-austerity party Syriza poised to win Greek elections, German Chancellor Angela Merkel warns that each member of the Eurozone must continue to “show solidarity along with responsibility to shoulder one’s own risks.” Fears of Eurozone debt crisis reignite and the euro drops.

February 3 – 6: New Greek government enters negotiations with EU proposing a “bridging programme” and toning down its demands for debt forgiveness. Investor sentiment wavers greatly during the first week of talks.

February 16: After two weeks of negotiations, Greece’s talks with the EU break down and the euro begins to lose ground again. Greek finance minister Yanis Varoufakis deems the agreement proposed by Europe “unacceptable” and insists on receiving an “honourable agreement.”

February 20: With just one week left in the negotiation period, German finance minister, Wolfgang Schäuble says that “the letter from Athens is not a substantive solution” and the euro slides again.

February 21 - 23: Late on 20th February, Greece agrees to EU proposal and the euro gains the following day, only to fall back down again when Greece delays sending list of reforms to Europe.

So far, 2015 has been quite tempestuous for Greece, and the EUR has certainly felt the turbulence first hand. The month of January saw the EURUSD plummet from 1.20 to 1.10 and although the major catalyst behind the move was caused by the Swiss National Bank (SNB) decision to remove the EURCHF minimum exchange rate and the indication this provided to traders that the ECB would introduce QE, some of the bearish momentum did stem from the uncertainty over a possible Grexit. The EURUSD then traded in an extremely narrow range throughout February, which I think says a great deal regarding how cautious traders became over the issues surrounding Greece. It was apparent to traders from an early stage that negotiations were going to go down to the wire and because of this, the EURUSD volatility that we had become accustomed to seeing basically disappeared.

To be honest, one of the problems was that hands were tried for both negotiating parties and neither wanted to look weak by surrendering negotiating power. If you looked at it from the perspective of Greece, you had to be sympathetic to its citizens. The austerity measures are clearly tough and its citizens are continuing to face hardship. The new parliament also made ambitious promises to end austerity, which obviously were absolutely critical to the Syriza party winning the election. If Syriza can’t deliver on its promises, the credibility of the new parliament will be at risk.

On the other hand, you can also understand the complete reluctance from Greece’s creditors and its stance that Greece must abide by the terms of the bailout deal. If the creditors let Greece have its way, it would have just opened the doors for other nations to renegotiate their debt.

Although at the time of writing it looks all but confirmed that Greece will be granted a four-month extension, this basically means we are heading for round 2 in June. We will then return to the question of whether Greece will be able to come to an agreement with the EU to pay its debts, or will it exit the euro, leaving the European Union to deal with new and unpredictable dynamics in the value of its currency? No one can yet say with certainty, but what is certain is that the markets will continue to closely monitor all developments in Greece while the extension takes place.

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Greek crisis is the biggest influencer of the euro's value.

Without the debt debacle in Greece, the single currency would be stronger.

10:41AM BST 30 Jun 2015.

Greece is dominating the headlines, but why should we care about the Greek debt debacle?

After all, Greece is a minor player on a global scale, contributing only two per cent to the eurozone's overall economy. And the Greek debt debacle has pushed the euro down against the pound, making it far more advantageous for those converting their sterling into euros.

The frontline negotiators are hoping the ongoing problem of Greece repaying its enormous debts will force regime change as the anti-austerity government is not to their liking.

There are other anti-austerity and anti-EU political parties watching closely hoping that the Hellenic outcome will strengthen their hands. Entry of the eurozone was always seen as a one-way street. If Greece exits then others may follow suit. Plus it may strengthen the hand of those arguing for Britain to leave the EU in our referendum.

Despite sterling benefiting from the euro's problems, the Continent is our biggest trading partner. Weakness across the Channel will knock our economic recovery too.

You may wonder why negotiations have been so tricky. After all, Greece wants to stay in the eurozone – many argue that it should never have been admitted in the first place – and political leaders round the world want it to stay in the euro club.

The fallout from the negotiations could have a domino effect, undermining the future of the eurozone and the rationale behind the EU. Currencies, stock markets and bonds would all be hit.

"For those keeping an eye on the euro's exchange rate, the Greek crisis is the biggest influencer of the single currency's value, dwarfing other factors such as deflation," said Andy Reid at moneycorp .

Without the Greek debt crisis, the euro would be stronger.

"A look at the underlying economy dispels the notion that Europe is a laggard and hints at a much-improved outlook: inflation is on firm footing and on an upward trajectory, first quarter growth was better than the UK and the US, unemployment is at three-year lows and PMIs [Purchasing Managers Index] - are constant good news stories", said Richard de Meo of Foenix Partners .

"Sadly, this is all to no avail, because Greece-related uncertainty will continue to shackle the bloc currency."

Meanwhile, the US dollar continues to be buoyed by talk of a rate hike. The Federal Reserve Bank is playing its cards close to its chest. There are renewed expectations that an increase could come as early as September, though others think the Fed may wait until next year.

"The Fed continues to emphasise that any increases will be gradual, so we may see only limited impact on the dollar after the first increase as markets may price in future increases," said Caxton FX analyst Alexandra Russell-Oliver.

However, there's a chance the Bank of England could also hike interest rates sooner than expected.

"It remains important to keep an eye on this, as a rate rise sooner rather than later could certainly further sterling's strength against the euro and the US dollar," said Charles Purdy at smartcurrencyexchange .

As Angus Campbell from FxPro explained: "Given that the Bank of England is in a club of just two central banks around the world looking to raise interest rates, there's not much that will prevent sterling from making further gains."

This is certainly the case with regard to the Australian and New Zealand dollars and the South African rand where the pound has soared to historic highs.

"The Australian, New Zealand and South African economies are all commodity-based economies struggling with lower pricing of their exports," said Trevor Charsley of AFEX . "The Antipodean governments are looking at lowering their interest rates again.

"The pound is in a nice uptrend against these three currencies and higher levels are forecasted for them. In particular £/AUD 2.0675,

£/NZD 2.3225 £/ZAR 20.00."

And Purdy added: "Growing uncertainty over a debt default from Greece, and the possibility of interest rate hikes in the US have also discouraged any appetite for perceived riskier assets – this particularly affects the South African rand."

Is this as good as it gets? De Meo said: "Anyone would be brave to call current rates the top, but an intelligent approach would be to secure a proportion at current levels to lock in the benefits of the moves so far, even if eventual peaks prove even loftier."

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Greek Eurozone Crisis History.

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In this article we will talk about history and we will use history books. In next several slides you will see bried history of Grece debt crisis till modern times.

Greek governments have one after another failed to pull out through any sort of reforms. The Greek problem isn’t something of 2000’s, it goes dozens years back. But the problem has become most evident after the world financial crisis from 2008. Germany of all European economic giants pushes and pressures Greece to undergo serious reforms, and eventually, the Greeks had no other way but to obey to its EU partners. The problem Greece has is that what could happen if the country exits from the eurozone?

Before getting deeper into the story of the Greek Eurozone crisis, first let’s be reminded that the Euro, the currency of the European Union, became effective as of 1st of January of 1999, and Greece entered the eurozone in 2001. On 1st of January 2002, the Euro became officially money to be used in Greece, replacing the Greek money – the drachma.

Modern time – Outtakes of the Greek economic crisis.

The leaders of EU member countries, in order to help improve its economy that suffered after the world financial crisis, concluded an agreement in 2008, to form a 200 Billion Euros stimulus package. Four countries were given special orders from the EU before becoming a candidate for receiving a portion of the stimulus package. The countries in question were Spain, Ireland, France, and Greece, and the orders were related to reducing each country’s budget deficits and show more financial stability. In October of 2009, after elections in Greece, won by George Papandreou’s socialist party, the country revealed its overspending and the newly elected government presented more than 300 billion Euros debts.

The dept was as much as 113% of Greece’s GDP, which is almost twice as much as Eurozone limits; 60% debt to GDP ratio. Greek corporate bonds and debt by the government were beginning to downgrade as credit ratings agencies acted upon the Greek debt revelation. High interest rates in turn affected higher costs for borrowing and lowered capital investment.

The European Union investigated the Greek excessive debt and pointed out harsh breaches in accounting procedures of the country. Greek budget deficit was in subsequence adjusted from 3.7% to a remarkably high 12.7%, four times more than the EU rules permitted.

2010 – 2 years after World Crisis.

Early stages of 2010 saw whisperings about Greece leaving the Eurozone. However, at that time it did not affect the ECB (European Central Bank). After those rumors, Greece revealed its austerity plan to deal with its deficit. EU’s answer was pointed towards Greece cutting more debts, and in the meantime, protest and riots were looming over Greek largest urban areas. Also, the new government claimed it wasn’t in the need of EBC’s help.

EBC and IMF (International Monetary Fund) made an agreement to offer Greece 30 billion Euros emergency loans in April 2010. Greek debts grew to 13.6% by that time. Just a month after 30B Euros, the IMF injected into Greece’s economy another bailout package of 110B Euros.

However, all the efforts couldn’t help Greek economy to recover. In was 2011 and financial ministers of the EU prepared another 500B Euros. Shortly after that, European politicians raised voices in favor of ejecting Greece from the Eurozone. Greece responded by further cutting costs and spending and another injection in the form of 109B Euros was poured into Greek economy.

Joint forces of the ECB, IMF, and European Comission, together with Greek government agreed to resolve the country’s debt, which the Greeks didn’t see as something in their favor as it meant more austerity. The citizens responded with protests, and the atmosphere in the country was so harsh and dark as unemployment rate was nearing 30% and the bailout size touched 1trillion Euros.

Early elections through 2013, and 2014 didn’t help Greece to recover and persuade nation that austerity measures were the only chance to get the bailout money from Europe.

However, in 2014 Greece managed to issue new bonds and pulled to have its B - credit rating upgrade to B by Fitch.

Another election stroke Greece, as the nation cried for another early election. In December 2014, the country saw a drop of its stock market almost 13%. Failed early election led to announcing another round in January 2015.

In May 2015, in an early election, the Greeks said NO to a duo of parties supporting EU ideas to solve the crisis. However, the attempt by Greece’s president to assemble all the parties – especially the centre-right “New Democracy” and centre-left “Pasok”, which in turn held power in Greece for several decades.

European media had given most chances for another round of election that were to be held in June, to be won by Syriza, which is group of left-winged politicians who were open against austerity. What raised concerns to Europe was the idea that should Greeks exit the eurozone, the contagion could spread to Spain and Italy.

The problems Greece has been facing actually goes way back. The length of this problem is accumulation of decade-long static foreign investment, weak performance in the public sector and fall in being competitive as a global force. The country has really complex business regulations and the tax code is rather dull. Greece came under the EU’s microscope after the Greece’s in 2004 new government revealed the previous cabinet’s faked expenses. It had revealed that the country had had exceeded the eurozone deficit threshold of 3 per cent.

The conservative establishment of the Greece’s government lead by Kostas Karamanlis had taken measures to restore the country’s economic credibility by raising taxes to try pull out the country from deep deficit and reforming entire tax system. Of course, slashing expenditure was one of the measures.

However, EU had called for more cost cuts, as well as did the markets. Common folks saw more difficulties. Thousands of companies were shut down, public places got empty. Simply, life of a common Greek was different – in a bad way. What tourists had known about Greece’s night life could only be seen on the weekends. Getting a bank loan became a real struggle and an adventure.

Number of people without job was crossing 20%, and half of unemployed were aged 18-35.

When the crisis was knocking at the door, ordinary people probably saw the austerity measures as something needed, and had Okayed it. Civil servants and farmers had put on strike, but the public at the time did not recognize it as necessary.

However, by the middle of 2015, the nation started feeling the pinches of austerity and voices of real concern started to be heard.

It has been expected that Greece would eventually exit the eurozone. But if Greece withdraws from eurozone to return back to its drachma, it could lead to disastrous result. Firstly, devaluation, falling of the banking system, and a total collapse of the country’s economy as the unemployment rate would rise due to banking system. Budget would not suit for civil servants pensions and public transport could be shut down.

What Greece can do is try to stay in the eurozone, and with billions of dollars injected by the EU try to rise from the financial mud, or accept the fact that it could exit, and prepare for it.

Staying would mean heavily leaning on the help from the EU, which in turn means it would have to obey more as it would have to attempt to convince markets it will be all right.

One of the former Greek politicians once said: We created this mess and we will solve it – in the Greek way”

Other path leads to print new drachmas which would do low on the market, and as it wouldn’t be solvent, Greece wouldn’t be able to buy enough oil and gas, medicines or food, which clearly, according to this second scenario, is not recommended.

Should Greece exit eurozone, it would damage Greek debt commitments. Those banks that have given loans to Greece would face a huge risk that another credit could crunch. Markets would then focus on Portugal, another country in line with severe deficit problems. Spain has already been seeing this problem of borrowing money, and another country to face it would put more pressure.

The politicians knew that people had wanted letting bailout packages go, accepting the Drachma back and thus putting an end to austerity measures and leaving Eurozone and the bailout packages. Anyway, Greece thus pushed the Euro to the lowest value compared to the USD.

However, everything suggested that taking Drachma back would damage Geek economy more than austerity measures and bailout packages would. One of the main suggestions pointed out that the new currency could be a good platform for creating a dangerous black market, which would leave the country off tax money and would severely damage the possibility to develop economy.

In the scenario of Greece exiting the Eurozone, the ECB would be taken responsible as the body that failed to maintain the credit value of the Euro. Concretely, after giving away one trillion Euros to help Greece stay in the Eurozone, the ECB itself would be stroke by a crisis.

Furthermore, European banks, as well as the global ones, would suffer losses. At that point, EU didn’t need Greece out of the Eurozone, and neither did banks globally.

At the same time, the Greek government didn’t really have other way out but accepting and adopting austerity measures imposed by the European economic powers.

Explaining Greece’s Debt Crisis.

By THE NEW YORK TIMES JUNE 17, 2016.

European authorities have authorized handing 7.5 billion euros, or $8.4 billion, in bailout aid to Greece, which will allow the country to keep paying its bills in the coming months. It has also won additional pledges of debt relief, helping to ease concerns about another crisis in Greece at a time when Europe is dealing with an influx of migrants and a continuing terrorist threat.

Debt relief has been a contentious issue for creditors, with the International Monetary Fund and Germany lining up on opposite sides. The I. M.F. has insisted that Greece cannot meet its budget goals without easing its debts, while Germany remains skeptical of cutting Athens more slack.

They have reached a compromise, of sorts. Greece’s creditors committed to debt relief, although not until 2018 at the earliest, provided the country continues to carry out painful changes.

In the European Union, most real decision-making power, particularly on matters involving politically delicate things like money and migrants, rests with 28 national governments, each one beholden to its voters and taxpayers. This tension has grown only more acute since the January 1999 introduction of the euro, which binds 19 nations into a single currency zone watched over by the European Central Bank but leaves budget and tax policy in the hands of each country, an arrangement that some economists believe was doomed from the start.

Since Greece’s debt crisis began in 2010, most international banks and foreign investors have sold their Greek bonds and other holdings, so they are no longer vulnerable to what happens in Greece. (Some private investors who subsequently plowed back into Greek bonds, betting on a comeback, regret that decision.)

And in the meantime, the other crisis countries in the eurozone, like Portugal, Ireland and Spain, have taken steps to overhaul their economies and are much less vulnerable to market contagion than they were a few years ago.

Debt in the European Union.

Gross government debt as a percentage of gross domestic product plotted through the fourth quarter of 2014.

Debt in the European Union.

Gross government debt as a percentage of gross domestic product plotted through the fourth quarter of 2014.

Greece’s G. D.P. and Unemployment Rates in Europe.

First quarter 2015 average; *Britain is the three-month average through February.

Greece became the center of Europe’s debt crisis after Wall Street imploded in 2008. With global financial markets still reeling, Greece announced in October 2009 that it had been understating its deficit figures for years, raising alarms about the soundness of Greek finances.

Suddenly, Greece was shut out from borrowing in the financial markets. By the spring of 2010, it was veering toward bankruptcy, which threatened to set off a new financial crisis.

To avert calamity, the so-called troika — the International Monetary Fund, the European Central Bank and the European Commission — issued the first of two international bailouts for Greece, which would eventually total more than €240 billion.

The bailouts came with conditions. Lenders imposed harsh austerity terms, requiring deep budget cuts and steep tax increases. They also required Greece to overhaul its economy by streamlining the government, ending tax evasion and making Greece an easier place to do business.

The money was supposed to buy Greece time to stabilize its finances and quell market fears that the euro union itself could break up. While it has helped, Greece’s economic problems have not gone away. The economy has shrunk by a quarter in five years, and unemployment is about 25 percent.

The bailout money mainly goes toward paying off Greece’s international loans, rather than making its way into the economy. And the government still has a staggering debt load that it cannot begin to pay down unless a recovery takes hold.

The government will now need to continue putting in place deep economic overhauls required by the bailout deal Prime Minister Alexis Tsipras brokered in August, as well as the unwinding of capital controls introduced after political upheaval prompted a run on Greek banks.

Greece’s relations with Europe are in a fragile state, and several of its leaders are showing impatience, unlikely to tolerate the foot-dragging of past administrations. Under the terms of the bailout, Greece must continue to pass deep-reaching overhauls, many of them measures that were supposed to have been passed years ago.

Reporting was contributed by Liz Alderman, James Kanter, Jim Yardley, Jack Ewing, Niki Kitsantonis, Suzanne Daley, Karl Russell, Andrew Higgins and Peter Eavis.