Movement in Greek Debt & Currency Transactions

The Greek economic situation remains the focus of economic news this week. However, in contrast to previous weeks, the news was comparatively positive. The key event has been the debt swap, the largest restructuring of a Government’s debt in history. This debt-swap was one of the key conditions for the latest bailout, and analysts believe that if Greece had been unable to secure the debt swap, it could have been disastrous for the Greek economy, as the bailout would have been refused. As it stands, however, the bailout is set to be agreed in a meeting next week. Because of this, we have seen slight weakness for sterling against the euro over the past few days. However, concerns over the total state of the Greek economy, and the Eurozone in total, prevented the Euro making any major gains, meaning the rates for transferring sterling to euros remain comparatively strong.

French President Nicolas Sarkozy has gone so far as to claim that the Greek debt crisis is ‘over’, although this is more than likely an attempt to gain support at home. The Greek economy itself contracted by 7.5% at the end of 2011, up from the 7% predicted, furthering the Eurozone woes, and preventing the currency from making any truly major gains against sterling. With 50% youth unemployment and no growth, it seems unlikely that Greece will be doing the Eurozone any favours in the foreseeable future.

Sterling itself had a mixed week. Industrial output fell 0.4%, rather than the 0.3% rise that economists had expected. The Bank Of England decided to hold interest rates remained at 0.5% on Thursday, marking 3 years since they were last altered. The Monetary Policy Committee also voted no further change to its Quantitative Easing policy. However, the weak industrial data has gone some way to furthering fears of recession, causing the aforementioned weakness against the Euro, and also a small slip against the US Dollar, making rates for transferring dollars into sterling the best we’ve seen for some weeks. The US dollar’s strength has been helped by key jobs data being higher than expected with 227,000 jobs added, making analysts believe that the US economy is beginning to stabilize.

It was announced this week that a committee of MPs are demanding the government set up plans to deal with the collapse of the Eurozone “as a matter of urgency”. Whilst the breakup of the Eurozone seems incredibly unlikely (with stronger nations, such as Germany, being able to hold up the single currency almost single handed), it is understandable that many people would have concerns. The demands of these MPs appear to be little more than a precautionary measure in the face of an unprecedented catastrophe, and shouldn’t be considered as a confession by members of the British government that the single currency is about to collapse.

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