16/6/2015: My own views on Europe and the possibility of a Grexit.

So last week I was on TipTV and one of the elements we looked at was the Euro situation. I probably did a rather ham-fisted attempt at explaining my view as someone who’s been watching this situation for the last 5 years. Therefore here’s a chance for me to explain my thinking with a little more clarity.

This has been going on for years now. Greece comes along with its begging bowl and claims the cupboard is bare and tries to charm the rest of Europe with a winning smile. Europe gives them a slap on the wrist, slips them a 20 euro note in their pocket and then sends them on their way like a wayward scamp, waiting for the next time that they come-a-begging. Which they always do. ( I read one comment saying that Europe has been bailing out the Greeks since the time of the Romans. Perhaps better educated individuals than I can share some light on whether that’s true or myth?) And once again the can has been kicked down the road. Will this happen again? What has to happen for their to be a harder line from Europe (which is what they’re all claiming is happening).

Anyway here are my thoughts:  Who really will make the final call? Christine Lagarde at the IMF? Angela Merkel? Mario Draghi at the ECB?  Jean Claude Junker as EU President? Donald Tusk at the European Council?  Who actually is the one person with the power (or the will) to say “enough is enough” for Greece?

Now clearly should the worse happen and there is a default / Grexit then Greece will be the ones to announce it, and for it to be seen as their decision. The question will be: did they jump or were they pushed? Where the EU’s demands so hard that Greece was forced into a corner? Which just leads me back to the above paragraph. Who really has the power to do that?

My own view is that all of those politicians will be thinking about their political legacy and who wants to be known as the man or woman who may have started the possible destruction of the Euro?

Does this then play into Greece’s hands? Do they know that they can continue to kick-the-can down the road due to the EU’s inability to find enough consensus to make a decision?  Actually having just thought about that last sentence I am sure that they all have consensus it’s just that they lack the back-bone for one person to come out and make the call. My own bet is that if anyone does it then it will be Merkel.

What may force their hand? Well I have no doubt that Putin is in his room at the Kremlin (do they still operate out of there?) rubbing his hands with glee. At best he steps in and helps out Greece (a NATO member) and draws them into his sphere of influence. At worst he just gets to make the EU look like blundering chumps (because we hadn’t worked that out ourselves) and distract world attention from the situation in Ukraine.

Just as a personal view-point: I strongly believe the Euro will survive in some form. Why? Well it suits the Germans and their export driven economy and outlook far too much to give it up.  Compared to the old Deutsche-Mark the Euro is a far better proposition. Hence why I believe it will survive but maybe in a different form.  In public the Germans are showing hand-wringing and sucking of teeth at the situation. Back behind closed doors they’re giving out fist-pumps and partying like its 1999 as they’ve watched the Euros slide in price from 1.40 down to below 1.05 at its lows. If there is a Grexit then maybe price will drop even further. Then again maybe it’ll rise as the rest of the world sees them cut Greece adrift?

At the moment I just see EURUSD in a period of consolidation, with no real direction. The easy money was made this time last year. And EURUSD bears where probably doing ok till mid-March. Since then its been a bit messy and choppy. To me it looks like it’s coiling up to make its next move. As always I will just let its play its hand and then look to surf the dominant trend – whatever that may be. Until then I’m keeping my powder dry.

So what do you think? Am I way off the mark (i never claim to be an expert just an interested observer) or do you hold a differing view?

Until next time, trade well.

Paul