Official Confirms That EC and ECB Are Drawing Up Plans For Greece?s Eurozone Exit, Yet GBP EUR Rate Drops

Modified: Sunday, 20 May 2012 21:17 BST - Written by James Fuller

STORY LINK Official Confirms That EC and ECB Are Drawing Up Plans For Greece?s Eurozone Exit, Yet GBP EUR Rate Drops

The ongoing crisis in the debt-stricken eurozone is increasingly resembling the final throes of the Roman empire, as the edifice of ‘political union’ crumbles in a wash of subterfuge and rumour.

Market whispers abounded late on Friday that German Chancellor Angela Merkel had urged Greek President Karolos Papoulias to hold a referendum on the troubled Hellenic state’s continuing membership of the eurozone alongside next month’s popular vote to decide the make-up of the country’s next government, during a telephone conversation which the pair had held. German officials were quick to dismiss the rumours as a ‘misunderstanding’; if there was substance to them, then it would mark an extraordinary ‘volte face’ by Germany’s leader, given the vehement objections which she voiced when Greece’s erstwhile Prime Minister George Papandreou suggested such a referendum last year.

Meanwhile, EU Trade Commissioner Karel De Gucht ramped the stakes up for the eurozone as last week’s session in the currency markets drew to a close, stating that the European Commission and the European Central Bank are making official plans for Greece’s exit from the euro. This was a watershed moment – up to this point, eurozone officials, when questioned, have simply followed the ‘party-line’ and commented that Greece would not be leaving the euro.

In spite of increasing fears over the euro’s continuing existence in its current format, the GBP EUR exchange rate suffered three consecutive days of losses in the final three sessions of last week, to move from Wednesday’s multi-year high of 1.2578 to close the week at 1.2375. The eurozone’s manifold problems now look to be largely factored in to pricing on the euro, however, market participants were relatively slow to ‘price-in’ the negative effect that a disorderly Greek default would have on the UK economy. Any remaining naysayers were issued a timely reminder yesterday, when UK Secretary of State for Justice warned in a television interview that Britain, and in particular the British banking sector, is ‘heavily exposed’ to the eurozone’s financial crisis. Bad news from Europe no longer necessarily means higher rates from GBP EUR, it would appear.

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