Pound Euro Exchange Rate Spirals As Greece Heads For Second General Election

Modified: Tuesday, 15 May 2012 18:14 BST - Written by Tim Boyer

STORY LINK Pound Euro Exchange Rate Spirals As Greece Heads For Second General Election

Yesterday morning’s European session offered a timely reminder of why a significant proportion of the global investment community are still willing to hold euro-denominated assets, when the region’s leading economic power, Germany, released its latest GDP growth data. The figures revealed that German economic activity had expanded by an impressive 0.5% in the first three months of this year – well ahead of expectations of a slight increase in GDP of only 0.1% in this period. With historically high levels of domestic employment and a miniscule national debt in comparison to that of other neighbouring states, Germany continues to provide the economic model to which other nations aspire. The corresponding whole-of-eurozone Q1 GDP data, released a little later yesterday morning, also confounded expectations to show at 0.0% - analysts had been anticipating that the numbers would reveal another quarterly contraction in the region’s economy.

However, the positive sheen surrounding the euro did not last long. The afternoon session was undoubtedly a negative one for the single currency – news from Greece saw to that. The Hellenic state announced that it would be paying down €435m worth of its national debt yesterday, reminding the markets of what a parlous state its finances are in, given that €6.2bn of debt is still being held by financial institutions which refused to take part in the country’s much-vaunted debt swap earlier this year. The news from Greece got worse later yesterday, when a last-ditch effort by the country’s political parties to form a government ended in failure, meaning that another general election next month is now a near-certainty. Several weeks of political positioning and opinion poll analysis are now expected, with the euro likely to lurch lower if at any stage it appears likely that the winning party or ruling coalition will be ‘anti-bailout’.

The European session ended with a seemingly ominous piece of news, when it was announced that the plane taking newly sworn-in French President Francois Hollande for a meeting with Angela Merkel had to abort its flight to Berlin and return to Paris because it had been struck by lightning. Even the Gods appear to be conspiring against the euro, and it could get a whole lot worse before it gets better……

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