Greek Fiscal Problems Weigh on Euro

Greek debt woes have weighed heavily on the multi nation euro since late last year. In 2009 Greece’s rating was downgraded by two ratings services. Despite assurances by EU finance ministers who said the Euro Zone’s debt crisis is under control investors remained unconvinced. Despite slight euro gains against the US dollar on Monday the euro remains close to an 8-1/2 month low vs. the greenback. Debt concerns have spread to Spain and Portugal putting additional downward pressure on the euro. Investors and traders expressed concerns that the G 7 group of nations did not address currency issues during their weekend meeting. Risk aversion remains dominant in currency markets. David Song of DailyFX stated, “Risk trends are likely to drive price action in the currency market going into the North American session as the economic docket is fairly light for today,. Over the next few days, we will have to see how policy makers in Europe plan to deal with the issues that are coming from Greece, Portugal and Spain.”

Greek Unions Threaten Strike

Greek public service unions plan to challenge the austerity measures with a 24 hour strike on Wednesday. The strike threat prompted a rise in the cost of insuring Greece’s debt. The euro has fallen almost 10% from a 15-month high of $1.5145 hit last November. Last week’s selloff of Greek, Portuguese and Spanish debt hurt global markets and prompted the G 7 nations to address the crisis. EU finance ministers said they would make sure Greece adheres to the nation’s budget cutting plans. European Central Bank President Jean-Claude Trichet said he has confidence in Greece’s plans to address the crisis and U.S. Treasury Secretary Timothy Geithner said that the EU ministers, “made clear to us they will manage this with great care.”

IMF Bailout Plan Scrapped

Investors and traders expressed concerns that an expensive Greek bailout could upset recovery efforts and hurt financial markets. Michael Woolfolk of Bank of New York Mellon stated, “What I think is needed is an agreement on behalf of the EU to provide further support for Greece to further ensure that it doesn’t default.” A plan by the by the International Monetary Fund to bail out Greece was stopped by Jean-Claude Juncker, the leader of the euro zone finance ministers’ group. UBS analysts said before the G 7 meeting that an IMF bailout of Greece would offer the best solution to Greece’s ongoing debt woes. In a statement the Analysts stated, “An EU bailout that is half-hearted in its fiscal assistance would damage the euro zone’s credibility even further.”