D-Day for Greece, Euro Edges Higher |
All eyes will be on Athens tonight, as the Greek parliament is preparing to vote on the next round of austerity cuts and economic reforms. The result is expected to be close and traders are proceeding cautiously in today's trading. The euro has edged slightly higher against the U.S. dollar and the Japanese yen. At the moment, the euro is up 0.19% against the greenback at $1.4398 and 0.07% against the yen at $116.66.
The European financial circles are gathering to try to help Greece resolve its crisis. Yesterday, the CEO of the largest Italian bank, Corrado Passera, said Europe's banks can work together with the EU and the IMF to work out the crisis in Greece. The move follows the announcement by the French banks that they are prepared to allow Greece to repay its debt in 30 years.
There are two ways to interpret these messages. On the one hand, it could be viewed as a sign that the Europeans are finally coming up with a credible plan to resolve the debt crisis in Greece. On the other hand, these moves by the European financial elite could be viewed as a sign of panic, an evidence that the Europeans are not very hopeful that Prime Minister Papandreou will be able to push the latest round of painful and deeply unpopular reforms through the Greek parliament. The latest announcements by the French and Italian banks could be viewed as a desperate attempt to sway the parliamentary opinion in favor of the government's proposal.
Some news from Greece suggest that PM Papandreou will be able to enforce discipline within his own party. The Socialists, however, have a very slim majority of 155 lawmakers in a 300 seats parliament. The opposition seems poised to vote against the reform package. For days, PM Papandreou has been trying to persuade backbenchers from his own party not to vote against the government's proposal. Today, one of the socialist lawmakers who threatened to rebel said he will vote for the proposal after all.
Even if the Greek parliament votes in the reform package, the resolution of the crisis is still far away. The Greek government intends to privatize a large number of companies in order to raise funds to pay off its massive debt. These measures are highly unpopular among the Greek people and the unions, however. It might easily be the case that the Greek government will end up gathering far less money from its privatization program, since many foreign investors will be hesitant to invest into companies where they know will face strong opposition and hostility from its workers. If the reform package passes today's parliamentary vote, it is very likely that investors' fears will simply move to the problems in implementation of the reform package. Some analysts, however, believe the euro could rise to $1.45 if the parliament votes "Yes".
In the shadow of events in Greece, Spain published disappointing retail sales data earlier today. In May, Spanish retail sales fell 5.8% from a year earlier, which represents the 11th successive month of declining retail sales. The May results fell below analysts' expectations of -4% and April's value of -2.1%.
Spain is one of the weaker members of the Eurozone and the Greek crisis can easily spread to the Iberian peninsula. Like Greece, Spain is having its own debt problems and high hostility among its population towards the government's austerity program. The latest retail sales results are just another sign of the weakness of the Spanish economy, which will have negative consequences on the government's tax revenues, crippling its efforts to reduce the country's mounting debt. Spain is not yet Greece, but has the potential to become one.
Some traders will believe that the Greek parliament will vote "Yes" today. In addition, many traders will be optimistic about the recent announcements coming from the French and Italian bankers, which could persuade some that the Europeans are coming up with a viable and credible plan to resolve the Greek crisis.
About the author: Benzinga
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