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Tuesday, 3 January 2012

UK & Euro Stumble into the New Year

vote, Sarkozy, fear, current affairs

Every New Year shoppers flock to the January sales; Christmas presents get returned; resolutions are broken; turkeys breathe a sigh of relief; and the currency exchange markets return to full functionality. New profit targets are set and new initiatives written up, to ensure rates fluctuate with the same vigour and volatility as the year before.

Some positive data for the Euro released today caused the Pound to drop slightly from daily highs of 1.200 to daily lows of 1.194; the pair is currently trading at 1.196. Unemployment fell by 22K in Germany for the month of December after analysts had predicted a modest decline of 10K. The positive figure caused Unemployment to fall by 0.1% from 6.9% to 6.8% contrary to predictions of stagnation.

However, with no significant monetary policy changes over the festive period the Eurozone remains on the edge of the precipice of disaster. French President Nicolas Sarkozy is exercising the age-old tactic of fear in order to support his bid for re-election; in an attempt to displace responsibility for the sovereign debt crisis he has described the global financial situation as: “planetary... unprecedented... the worst since World War II.” The premise of this statement is that France needs stability, not change, in order to deal with a phenomenon that Sarkozy suggests is not his fault. A statement in the French newspaper Les Echos Daily succinctly sums up the strategy: “If the crisis is bad, Sarkozy is beaten; if the crisis is very bad, he is elected.”

In another European statement evoking fear, Greece signalled their urgent need for a second €130 billion bailout. Government spokesperson Pantelis Kapsis told Skai TV that: “The bailout agreement needs to be signed otherwise we will be out of the markets, out of the Euro... The situation will be much worse.” The Greek government faces a tough task as it seeks to bring in yet more austerity measures and a debt-swap deal with its creditors to satisfy its side of the agreement before the money can be released.

A Greek dropout would be catastrophic for the Eurozone and the Franco-German banks that hold its debt. There is also a strong possibility that the first country to break from the 17-nation strong bloc could act as a catalyst for further break-ups, with Mediterranean neighbours: Spain, Italy, & Portugal the country’s most at risk.

Considering the compilation of complications that face the Eurozone it is possible that safe-haven flows could continue across the English Channel towards the Pound. An improvement in Purchasing Manager Index in December saw manufacturing grow from 47.7 towards the crucial mark of 50.0 that separates contraction from expansion, but the UK figures fell just short at 49.6. This PMI growth is encouraging but it is not enough to halt the possibility of another recession looming large over Great Britain. Make no mistake; the Pound is in trouble, just not as much trouble as the Euro.

Cutting Edge Current Affairs Courtesy of:
Josh Ferry Woodard 

pound, euro, current affairs, chart

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