Monday, May 28, 2012

What is The Euro-Zone Report

The Euro-Zone Report is a blog for analyzing economic developments in Europe. Put in critical focus are: 1) any political developments which effect the economy such as elections or changes that effect the economic policy such as bank meetings; 2. Economic data (such as sentiment, factory data, economic studies/reports) that gauges the current state of the European economy, the past state, and possible future state; 3. Evaluation of the Euro currency.

The purpose of The Euro-Zone Report is for use by forex traders, stock traders, and investors.

Neal Vanderstelt - Currency Analyst
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The fate of the Euro weeks away - June 17th Greek elections

Radical Left vs The New Democracy:

Of course one might say the fate of Greece; but if Greece leaves the Euro-zone it could lead to a domino effect, which ultimately could crash the union.

New Election Polls show the SYRIZA is losing ground to the New Democracy. The SYRIZA are a radical left and Anti-Austerity party vs the conservative and pro-austerity (ND) New Democracy party.

Greek surveys suggested conservatives could form a coalition government with socialist PASOK, which have also pledged to stick to Greece's austerity commitments.

Because of austerity the previous May 6 elections proved inconclusive. With none of the parties able to form a coalition government - another ballot was scheduled for June.

Levant Partners (a Greek fund manager) predicts a 70% chance of a Euro exit if Syriza comes first in the elections. Support for Greece will stop if the Greek government does not accept the unpopular and harse austerity measures.

Basically there are 3 parties in the race: The New Democracy, The SYRIZA, and The PASOK. The only leading anti-austerity party is The SYRIZA; the race is neck and neck between pro-Austerity parties and the anti-austerity SYRIZA.

Poll conducted by ALCO for newspaper PROTO THEMA:

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Saturday, May 26, 2012

Will Greece Leave the Euro?

Greece could leave the Euro over Austerity measures which would chop down Greek government saleries and benefits. The alternative to not accepting EU and IMF demands is to leave the Euro and have a dramatically reduced Drachma (the previous currency).

IMF head Christine Lagarde warned that the IMF had no intention for softening terms for Greek bailouts. Greek elections are to take place in mid-June which will be pivital to what type of government and path Greece will go down; a path that is either pro-Austerity or anti-Austerity and anti-Euro.

In France Anti-Austerity Hollande (a Socialist) has already won the heart of the French.

George Papandreou (former Prime Minister of Greece), was forced to resign six months ago after protests, strikes and riots against pay cuts, tax hikes, and slashed pensions demanded by international lenders in return for $325 billion in two bailouts.

While the political change caused some temporary euphoria the problem is hardly solved.

New elections for Greece are set for June 17, 2012 and is tied between the SYRIZA (who are against the austerity, led by Alexis Tsipras) and the PASOK (led by Evangelos Venizelos).

On 18 March 2012, Evangelos Venizelos (new PASOK leader) was elected unopposed to replace George Papandreou as PASOK president and led the party in the May 2012 general election.

7 countries are officially in a recession in the Euro-zone. Only Germany showed growth in the 1st quarter. Meanwhile the European Union seems to be more divided rather than in agreement on issues; specifically what to do about the sovereign debt crisis, and Greece is the weakest link that could soon snap under the face of drastic austerity measures. Anything could happen!

related video:

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Marc Faber says European Austerity is a joke on CNBC see video

According to Faber, Euro-zone government spending has increased by 76%. But, the Greeks don't want to take the 50% Austerity measures that would cut saleries and benefits. The alternative to Austerity is leaving the Euro; and having a Drachma that is worth 70% less than the Euro. Faber however says, Greece should leave the Euro right away to avoid commitments outside of Greece. On China Faber says the slow down is greater than analyst suggest, according to commodity weakness; the logic is that if China was strong so would commodity prices - which have faltered.

Neal Vanderstelt - Currency Analyst
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Thursday, May 24, 2012

Euro Parity to US dollar 2012?

A cheaper currency would make an export country more competetive. It would not necessarily be a bad thing in that case as long as inflation didn't get out of control. Recent weak factory data and business sentiment data shows the Germany (the euro's largest economy) is struggling.

Widespread European debt and unemployment woes only make the situation worse in a slow global economy. Also, Greece is not the only country that requires support from the Euro. The pot is pretty thick when you throw in Spain, Ireland, Portugal, along with Greece. Did I miss any?

If Greece exits the Euro, parity (or less) could happen sooner rather than later. Currently there's an increased chance that Greece will leave the euro voluntarily or by being booted for not adhearing to EU austerity demands.

Greece however does not like the idea of strick austerity (even if it brought it on itself) because it means too many cut backs in the public service sector and less room to function as a government. With less room to function comes more turmoil for Greece but still it may be a lessor devil to deal with if it were to abruptly leave the Euro. It is a very unromantic relationship with lots of possibility for heartache.

As if it isn't enough to deal with in Greece with high unemployment, unsustainable debt, and a long list of overall instability in Greece; there is also the Greek election on June 17th, 2012. With the austerity being cosidered too strick Greece might vote in an anti-austerity government which would be considered to be anti-Euro. No matter how you spin it the debt is here to stay for a long time to come and a near-term solution to fix Greeces problems just does not exist at this point.

China has tried to support the Euro because a devalued Euro would hurt China. China's support may explain the Euro's "slow" fall when ecomomically things seem out of control. Perhaps no amount of propping will stop a greater fall with the Euro slipping through key support levels at the same time the global economy seems to be slipping.

The real shock would be if Germany decides to go it alone without the Euro. Many Germans feel this is actually the route to go since they are the leading European economy; perhaps, Germany does't need the Euro for stability especially since Germany is picking up the bill for Greece and other debt-stricken countries.

Euro Data this week:
EUR Euro-Zone Current Account s.a. (euros) (MAR) 9.1B Previous: -1.2B
EUR German IFO - Business Climate (MAY) 106.9 Forecast: 109.4 Previous: 109.9
EUR German IFO - Expectations (MAY) 100.9 Forecast: 102 Previous 102.7
EUR German Gross Domestic Product w.d.a. (YoY) (1Q F) 1.2% Forecast: 1.2% Previous: 1.2%

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Monday, May 21, 2012

Article Notes from BBC Story: "What happens next if Greece leaves the eurozone?"

Link to Original Article: What happens next if Greece leaves the eurozone?

1. Greece has been Unable to form a government.
2. the type of government that will be put in power will determine if Greece is to stay in the Euro - in other words; the choice is A) a government that is for austerity or B) a government against the austerity (eg not willing to pay back the Euro back for bailouts). If the government is not going to accept the austerity it is likely Greece will have to leave the Euro. Austerity is a strict form of government cut-backs which are usually considered undesirable.
3. Greece has such high debt, high unemployment, and other problems; that it has to rely on bailouts to function at it's most basic level of governing (eg pay government public service workers of whom also have to accept cut backs as part of the austerity plans).
4. The Greece problem is multi-faceted (having many aspects). In the beginning Greece did not even qualify to be in the Euro because it joined while already having debt that was higher than the Euro-Zone's standards. So this problem didn't exactly happen overnight and the contagion has spread throughout Greece; and even throughout the EuroZone because of bailouts and investments from other countries that have took major losses with investment in Greece. Greek investors already had to take major losses on their investments earlier this year and technically it was at that point the Greek had already defaulted on their debt in the form of massive write-downs.
5. Some think a default is in the books. However, if Greece defaults now the problems they have now may be 2-fold. For one they will not be able to borrow to sustain their government. Then when a new currency is established it is very likely it will be highly devauled because it will have to borrow against itself to sustain the new government. There will be a lack of confidence for a long time to come before new investors will invest again in Greece because it would be like a gift investing with more turmoil very likely to come - at least in the short-term to medium-term most are going to stay away from Greece investment. In the long term there may be hope for Greece but not until there are signs of stability.

Neal Vanderstelt - Currency Analyst

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