EUR/USD Commentary Weekly Review February 11, 2012
I usually dont do a weekly review for the forex market commentary unless its warranted and this week it is. I had to laugh when Steve commented on yesterdays commentary when he said “Greek deal? Yea riiiiight” I have really no choice to agree with Steve in that the “deal is on” then “the deal is off” scenario has been twisting our guts for the past couple months. First it was the PSI deal now its the whole bailout that is in question since the Troika has clamped down on reassuring them self and the taxpayers footing the bill for Greece get what was promised with reforms.
After going through my news sources and seeing that about 6 more members of the coalition government in Greece have resigned in protest it would seem that the deal will not get done. This is where I disagree. The reason is because the alternative to the bail out (bankruptcy) has the potential to be worse depending on your opinion but my opinion dont matter. What does matter is what the Greek government thinks and has to be considered. Even though the right wingers hate the idea of more austerity and are putting a block in the road so to speak. The resignations show that they are purging the ones who will vote against the deal so they can get it done. All the while the ones who resigned are positioning them self politically for the next election in 2013. This is why I do feel the deal will get done.
Now here is the kicker. Although the deal passes and Greece gets its money. The same factors that convince me the deal will get done are the same ones that make me think they will NOT keep the promises on reforms. So yet again this will only buy the Greeks and the EZ a few months until the next round of bonds mature and we will most likely see the default when the Germans have had all they can take. At this point I think Germany and the Troika know this and are just buying time to shore up the EZ banking system to prepare for it.
Now if Greece can pull off some sort of miracle and get some reforms done over the next year or less that turn some growth from the economy then they may just have a chance. However the fact is since they joined the Euro under false pretenses and I have to think they knew it at the time. It seems like common sense that one would adhere to some reforms when times are easier rather than wait for the ship to be 90% flooded before they plug the hole. Having said that the fact is common sense is not all that common and the reality is the Greek government is far from alone in this sense. They just happen to be first on the list.
Have a great weekend guys