The Euro to Pound Sterling (EUR/GBP) exchange rate weakened on Monday as German Finance Minister Wolfgang Schauble suggested that Germany would back Greece to hold a referendum on introducing painful economic reform measures. The comments worried investors who say that Athens does not have enough time to hold a vote as its funds are vanishing fast.
The Euro to Pound Sterling (EUR/GBP) Exchange Slid To a Session Low of 0.7150
Holding a referendum does make sense as it could make things easier for the leftist Syriza led Greek government to back down on pre-election promises that are blocking a deal from being reached with the nation’s creditors. If, the referendum shows that the majority of the Greek people back such measures, than a new general election could be avoided.
‘If the Greek government thinks it must hold a referendum, and then let it hold a referendum. That might even be a helpful measure for the Greek people to decide whether it is ready to accept what is necessary, or whether it wants something different,’ said Wolfgang Schauble.
However, with Greece rapidly running out of cash and in desperate need of money to avert a default on its debts, investors are suggesting that there simply is not enough time to go through the referendum process. In short, if the nation runs out of money and defaults, it could be forced to exit the Eurozone. Implementing a referendum will also meet strong opposition from other Eurozone members who are quickly losing patience with the whole situation.
Greece must repay €750 million to the International Monetary Fund (IMF) on Tuesday. Eurozone officials believe that Greece has managed to scrape together enough money to pay for its obligations until the end of May but after that, it is unlikely to afford more debt repayments let alone keep the nation going.
Ukraine Conflict Set To Resume?
Also weighing on the single currency are worries that the war in eastern Ukraine will flare up once again. The eastern port city of Mariupol is preparing to be attacked as Russian President Vladimir Putin ends the VE Day celebrations in Moscow.
‘If a new attack takes place, the Minsk agreements will be ultimately dead and a new initiative at negotiating a lasting settlement in whatever format is unlikely for longer. The US and several European Union countries will see a renewed debate on lethal arms supplies,’ said Joerg Forbrig, senior program director at the German Marshall Fund.
The Euro could make further losses against the Pound on Tuesday if the latest UK manufacturing and industrial production data comes in positively. Also of interest will be the NIESR GDP estimate report.