Currency Watch: Another day, another Euro meeting

Although there is a fair amount of 2012 to still deal with, the markets look like they are happy to continue to move sideways for the upcoming few weeks.

Seasonal drift and a lack of interest is a common occurrence as we move into December, although development surrounding Greece could provide us with just one more kink in the road as 2013 draws to a close.

Last week’s European conference failed to really address any of the major issues. Greece’s debt/GDP ratio has continued to increase as growth has slowed, so the thinking follows that we will see a cut to their debt load.

This could come from a “grace period” (extending as to when bailouts would need to be repaid) and a maturity extension (how long they have to repay for). They could also reduce the interest rate and get central banks to give up profits although legal issues remain with the latter.

Greece is also waiting on its latest loan payment – a €31.3 billion tranche of aid has been withheld from them since June. There’s now talk of Greece getting €44 billion, which would incorporate the September and December tranches. When would this be? Not for a while as some regional governments (Germany in particular) need to approve it first.

Issues around sovereignty also exist – spending and tax decisions are increasingly being made centrally. If austerity is ordered for further bailouts, how much can the man in the street take? Not much more you would think given the riots and protests seen over the past few weeks.

While Tuesday’s conference failed to return anything there was a lot of spin from those concerned during the morning to assure the market that they were nearly there and that a deal would be forthcoming at the hastily-arranged meeting for this Monday.

Will they sort it out on Monday? Of course not! We would expect another fudge from the politicians and a slow drift into Christmas

Jeremy Cook is chief economist at World First foreign exchange.