The Euro to Pound Sterling (EUR/GBP) exchange rate softened by 0.20% and is forecast to fall over the coming week as fears over a Greek default surged as talks between Athens and its creditors failed. Greek Prime Minister Alexis Tsipras accused European creditors of issuing absurd demands and threatened that his government will create a pan-European political crisis if it is pushed any further.
The Euro to Pound Sterling (EUR/GBP) Exchange Rate Touched a Session Low Of 0.7143
The failure to reach a deal over the weekend means that it is highly likely that Greece will default on a repayment worth €300 million to the International Monetary Fund (IMF). Economists are warning that the impasse will lead to New Greek elections or the holding of a referendum. Capital controls could also be imposed on Greek banks in order to prevent capital flight, a move that will not go down well with the people.
‘Facing this reality, a new political mandate and thus a new government, a referendum or new elections will be required in Greece. Not only is it possible that we may need to see sovereign technical default and/or blocked Greek bank deposits in order to come to an accommodation between Greece and its official creditors, it may be necessary to do so in order to break the current impasse in negotiations,’ said Huw Pill, Goldman Sachs chief European economist.
‘Complete abolition of democracy in Europe’
The failure of the talks held over the weekend cause Tsipras to take a tougher stance with the nation’s creditors. In an article written for a French newspaper, the Prime Minister warned that the Eurozone’s dominant players were bringing attempting to turn the currency bloc into a technocratic monstrosity.
‘For those countries that refuse to bow to the new authority, the solution will be simple: Harsh punishment. Judging from the present circumstances, it appears that this new European power is being constructed, with Greece being the first victim,’ Tsipras raged in his article for the Le Monde newspaper.
The comments raise the likelihood that Greece will defy creditor demands and choose to default on the IMF repayment. Such a move would be the biggest sovereign default on record and could lead to the country withdrawing from the Euro.
European creditors now have to choose. Are they willing to allow Greece to leave? The nation is a strategically important location for Europe and NATO. Are European leaders prepared to let Greece leave and potentially turn to Russia and China?
Euro Losses Restrained by Spanish and Italian PMI Reports
Further losses for the Euro were restrained as data out of Spain and Italy came in positive. A Manufacturing PMI out of Spain soared to its best level in 97-months and Italy’s PMI jumped to a 49-month high. PMI data out of France and Germany however disappointed.
‘The rate of growth is modest rather than spectacular, however, and there are clearly countries which continue to struggle. Weakness is centred in the region’s core, with France’s manufacturing sector sill in decline and Germany only seeing very meagre growth,’ said Markit chief economist Chris Williamson.
Volatility for the EUR/GBP exchange is likely on Tuesday due to the publication of Eurozone inflation, German unemployment and UK construction PMI reports.