This week will see Greece come under the media spotlight once again, as Greek Prime Minister Antonis Samaras is set to meet with EU leader in what is expected to be a final plea for more time to meet their deficit cutting targets. The rumours have been circulating for some weeks now that Greece is once again struggling to keep up with the tough austerity measures that have been implemented and fears will now resurface that their future in the eurozone in under threat. The truth of the matter is that Greece have no more lives and despite Angela Merkel’s bullish stance it would take a serious amount of backtracking by the major EU powerhouses, if they were offer Greece a further extension. That said if Greece can demonstrate that they are indeed working towards these targets and can prove that their levels of debt are being significantly reduced, then I feel there is more chance of an extension being granted. We know that Germany want Greece to remain in the EU and I feel it widely expected that any Greek exit would have a serious knock on effect peripheral countries like Portugal and Ireland and whilst the full implecations of this are not yet known, it is a scenario the majority (including most of the Greek population) want to avoid.
As well as the Greek situation making the headlines, September could well prove to be a defining month for the future of the EU and the short-term direction of the single currency. Amongst the other issues at hand for EU leaders to ponder are the possibility that Spain will finally request the bailout experts have discussed is necessary for so long but despite this, many analysts are predicting that the powers that will be will remain bullish during this period. If this does indeed turn out to be the case, the continuing problems our own economy is facing could see the EUR in line for a fight-back against Sterling over the coming months.
As it stands GBP/EUR levels are still hovering around the 1.27 mark, as the markets wait for the upcoming economic events in Europe and the UK to unfold. Personally I still worry about the possibility of Greek exit from the eurozone and the potential contagion it could cause to other smaller EU members but I still feel EU leaders will try to reduce market fears and with the problems our own economy continues to face, a move back towards 1.25 is more likely than a move up through 1.30.
Back on our own shores and Chancellor George Osborne has been told he must change the course of the UK economy or cause “immeasurable damage”. Fears are growing that the UK is struggling to pull itself out of recession and as the Olympic blues start to set in recent poor data, including the widest trade deficit since records began, is weighing heavily on an already fragile economy. Following multiple announcements by the BoE (Bank of England) that growth forecasts will be minimal for the remainder of 2012, it is easy to see why concern is growing and personally I feel any positive momentum gained by Europe and the single currency over the next month could see the focus shift firmly on the UK and our economic uncertainty.
Key data this week – We have UK GDP figures out on Friday and further contraction is expected (-0.5%) which could cause Sterling weakness.
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