Currency watch: Greek drama keeps on giving

Do we have an agreement in Greece? Noises yesterday suggested so, although no clear announcement has been made.

However, as it has not been signed, ratified or confirmed in any way, shape or form, there are numerous hoops for this agreement to jump through before we can say “deal done”.

Firstly, the deal has to be voted on by the Greek parliament this Sunday. Some commentators have brushed this off as a mere formality but, following further labour strikes from Greece’s two largest unions and the resignation of the country’s labour minister, the debate within the chamber will not be tepid to say the least. Further protests in Syntagma square can also be expected.

Secondly, and like a naughty schoolchild, the IMF is now requiring Greece to provide written proof that the €300 million-odd hole in the new austerity package is tied up. Talks originally broke down over whether this should come from public sector pension pots, while defence spending has been mooted as a place where these cost savings could be found.

Lastly, the deal is all predicated that these reforms are enacted. There is a Greek general election in April, bringing an end to the six-month technocratic rule of Lucas Papademos. Should he leave and the new government renege on the deal, we are back to square one. The troika will put up their side of the bargain, it is up to the new leaders of Greece to keep up theirs.

As you can see, the entire situation is a mess and I am still unable to name a person, outside of the European political class, who believes this will work in the long term. Greece’s future remains outside of the euro in my opinion.

Matters closer to home were far simpler yesterday. The Bank of England matched analysts’ expectations with a £50 billion injection of further quantitative easing (QE) yesterday and warned that they expect a “significant shortfall” in the UK economy to persist.

Sterling had earlier picked up on news that our trade gap – the difference between our imports and exports – had narrowed to the lowest level since 2003, while manufacturing output had risen by 1% in December against an estimate of 0.2%.

The imposition of further QE has moved the interest rate expectation curve so that the market now doesn’t expect a rate hike in the UK until 2016.

Surely, by then this Greek drama will have come to a satisfactory conclusion.

Jeremy Cook is chief economist at World First foreign exchange