Eurozone: Apocalypse Inevitable?

Market Leader informed

Recently the financial world has been demonstrating quite a bad tendency – the world’s major currency, the US dollar, is being ‘capricious’. Its behavior is increasingly unpredictable. The instability of the American dollar (which is now rapidly depreciating against other global currencies) is not based on objective reasons alone. According to some experts, such ‘whims’ are caused to some degree by the US Government’s manipulations with the dollar. Despite its statements that it will not be involved in possible currency wars it in fact drastically responds to some countries’ willingness to depreciate their own currencies. This situation might change after the US Fed publishes exact data on quantitative mitigation which can be carried out in terms of volumes and terms in a few stages which the Fed can modify at each step of the program depending on the then current situation in domestic and foreign markets.

It seems that the euro ‘fans’ should rejoice as the single European currency is gaining weight against the ‘depreciated' dollar. Many already hurried to sell dollars and buy large amounts of the euro in the market. But there’s a catch here – it is the euro that this situation might cause to collapse! Many specialists forecasted such a scenario neither yesterday nor the day before yesterday. One of them, economist Mike Astrachan, writes in his article published in Israeli newspaper Globes that he didn’t think 12 years ago that the euro itself or its ‘father’ – the Eurozone’s nations – had any future. Back then, when the Eurozone was established, this specialist predicted a collapse of the union. To his surprise, it remained ‘alive’ for quite some time and, as a result, the Eurozone’s ‘collapse’ added a lot of pips and grew ‘monstrously’.

To be on the safe side (as the Eurozone hasn't fallen apart yet) Astrachan reports that the apocalypse can still be avoided. But, according to him, this requires coordination of effort of all EU members. Most importantly, the European Central Bank should take relevant measures. It is only in this case (and still questionable) that the euro will be able to ‘escape’ inevitable perdition. However, if most players remain rather inactive, doubtful and put off making decisions – it’s high time to get ready for a funeral procession for the euro. The Israeli economist interprets such rather ‘inactive’ players to include Greece and Germany.

What actually led to such a disastrous state of affairs in the Eurozone? This question, we believe, is quite logical in the context of Mike Astrachan’s arguments. Nevertheless, the specialist gives an answer to it as well. In particular, he believes that the situation with Greece whose economy is currently in a condition much worse than it was believed only a month ago became the cornerstone of all ‘misfortune’ facing the European Union. The global community was expecting specific decisions from Germany who promised to assign finds for resolution of ‘the Greek problem’. With a reservation, however, - only after local elections were held. Elections have been held. But the ‘problem’ still persists. Then the IMF gave Greece a helping hand but this aid (of 110 billion euros for a three year term) was offered on condition that the government of the Hellenes’ nation introduced a regime of tough economy. Soon it was implemented.
Astrachan writes in this respect: ‘It seemed Greece would need about 150 bn. euros with the cost of its exit from the euro and debt write-off being on a similar level. So, the decision was easy. If the same money can be used to give aid and stabilize the euro, why not? However, this seemingly simple decision triggered unexpected consequences’.

What are these consequences? Mutinies and manifestations Greece was seized with? Trade union strikes? Yes, this is the case, too. But, rather the response of the ‘suddenly poorer’ employees of the public sector to such measures. The need for global economy immediately caused a chain reaction – there was information that some other EU countries would ask for money in Greece’s wake, for example, Spain, Portugal, Ireland. Economy is ‘crippled’ in these European regions as well, according to experts.
Everybody knows that Spain has the highest unemployment rate in the EU. Besides, this nation’s foreign debt is about 400 billion euros. How else can it fight this situation other than by asking the IMF to provide the relevant amount as aid? Astrachan writes that if Spanish banks’ depositors feel like taking their money to more reliable financial institutions of the US, Germany or Switzerland, Spain will have to ‘inject huge liquidity’ into its own banks. What if this is coupled with more active involvement of investors in government bonds? What if they claim their funds back? It will be very tough. So, the amount of 400 billion euros is justified. But this amount is still based on Mr. Astrachan’s calculations which he actually is not trying to conceal asking whether the European Central Bank will ultimately finance some nations’ needs in such a volume? By the way, ‘what amount is actually needed? Nobody knows’.

The Israeli specialist makes the following conclusions: Spain, Greece, Portugal and Ireland can still save their national economies without causing any harm to the Eurozone. However, appropriate measures approved by the ECB should be taken as soon as possible. Otherwise, it will be impossible to rescue them.
As far as ‘mischievous’ Greece is concerned, Astrachan finds the existing rescue plan for its economy ‘exaggeratedly optimistic’ and unlikely to really help the country come out of crisis. So, the economist believes, those who organize massive strikes and protests against this plan are right.

‘It seems Greece had better secede (or be excluded) from the Eurozone, introduce a temporary or permanent debt ban and return to its national currency with a value lower than its equivalent in the euro. In short, Greece could carry out devaluation, lower interest rates and trigger inflation. Of course, it cannot take these steps as part of the Eurozone’ – this is Mike Astrachan’s literal position on this issue.
Moreover, Astrachan believes that Greece’s secession from the Eurozone will not solve problems of the union’s other members who, including Germany and France, should also secede for the union to fall apart once and for all. The economist also says that currently, however, it isn’t clear in what ways nations can secede from the Eurozone. For example, Greece can declare bankruptcy – this is understandable. What about the rest?

According to him, Germany is already ‘thinking this issue over’ which means this country in fact considers secession from the Eurozone.
As a summary of Mr. Astrachan’s arguments, we'd like to add that despite the truly pessimistic prospects for some EU countries the apocalypse he forecasted is not in sight. Moreover, in some parts of his article the economist literally insists that the Eurozone should fall apart. We wonder what actual reasons are behind Mike Astrachan’s desire to ‘ruin’ the European Union. Is this a fact that if it doesn’t collapse… the entire global economy can crash down affecting Israel, among others?

What is the opinion and forecasts of analysts of the Volume Analysis Department within the Masterforex-V Trading Academy?

The single European currency is steadily breaking new highs and reached a level at 1.4280. The previous level was broken by the euro almost a year ago, in December 2009.
The market sentiment remains ‘bullish’. A reason for optimism was given yesterday by the interest rates statement. From the point of view of technical analysis there is potential for a continued rising tendency. However, a correction cannot be ruled out in the near future towards 1.4100.

 

You can follow further daily forecasts for coming trading sessions provided by departments of the Masterforex-V Academy on pages of our magazine.

 

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