best way to deal with the Greek situation
Lack of coherence among European policymakers on how to deal with the Greek situation
The situation in Europe seemed to deteriorate yesterday as the single currency lost ground against the dollar but managed to hold its ground against sterling.
Investors are becoming increasingly spooked as there appears to be an increasing lack of coherence among European policymakers on how to deal with the Greek situation as the risk of contagion to seemingly ‘safe’ heavyweights increases. The divergence in policy to tackle Greece is being overshadowed by the uncertain political situation in Spain, with Zapatero’s ruling party suffering a crushing defeat in the local elections.
This political turmoil means Zapatero is less likely to be able to curtail the Spanish debt situation and meet the fiscal targets required to avoid a deterioration of the economic situation in the country. The fears of contagion are also being stoked by the rating agencies as S&P downgraded the outlook on Italy from ‘stable’ to ‘negative’, with Belgium also suffering the same fate.
A poor reading in the German business climate survey due at 09:00 could see a renewed bout of euro selling due to the fact that a strong German economy coupled with inflationary risks had been the key force behind the euro’s rally over the last month. The chances of a poor number increased yesterday after poor data out of Germany yesterday as well as weak EMU PMI figures.