Cogito

Greece Debt is the Biggest Threat to Euro

Posted in CFA by qmarks on February 21, 2010

Derivative traders are signaling that the euro’s slump to a nine-month low will continue even if EU leaders bail out Greece.

Short term rates for borrowing in euros in the forwards market are the cheapest relative to loans in dollars since September. The 50% collapse in that spread this month signals investors are betting the ECB will keep its benchmark at a record low, sacrificing euro strength to prevent deficit-cutting by debt-laden economies in the region from stymieing growth.

Otmar Issing, one of the fathers of the euro, states the principle on which the single currency was founded in his article at Financial Times last week. [Read it]

George Soros, today writes that the euro will face bigger tests than Greece. He says that the crash of 2008 revealed the flaw in its construction when members had to rescue their banking systems independently. The Greek debt crisis brought matters to a climax. If member countries cannot take the next steps forward, the euro may fall apart. [Read it]

source: bloomberg and financial times

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