Currency News Thinkpiece : Is Yanis Varoufakis the Saviour of the euro (currency:EUR)?

February 5, 2015 - Written by John Cameron

STORY LINK Currency News Thinkpiece : Is Yanis Varoufakis the Saviour of the euro (currency:EUR)?

The value of the euro (currency:EUR) plunged in the immediate aftermath of Syriza’s wholly convincing Greek election victory of 25th January. Commentators were queuing up, almost as soon as the exit polls revealed that the radical left-wingers had won the day, to pronounce the death of the eurozone and to predict that Italy, Spain and Portugal would rapidly follow the debt-addled Hellenic state out of the door marked ‘exit’.

The initial shift out of the single currency sent the Pound Sterling euro exchange rate up to as high as 1.3504 within 24hrs of the Greek result – a level which represented a 7 ½ year high for the pair. The single currency remained heavily under pressure during the following five days as Greece’s new leaders staged a whistle-stop tour of the European Union’s leading capital cities.

Last Thursday’s session brought a particularly damaging meeting between new Greek Finance Minister Yanis Varoufakis and eurogroup Finance Chief Jeroen Dijsselbloem, which saw the freshly-installed leather-clad Hellenic Money Man warn that he would have no dealings with the EU / ECB / IMF ‘Troika’. Varoufakis has previously described the ‘Troika’ as ‘a committee built on rotten foundations’, so the markets judged his threat to be meaningful.

Varoufakis is a self-confessed Marxist and an academic; as such he holds views which are firmly at odds with those of most currency market participants’. He has railed against the different treatment of bankrupt states and bankrupt retail banks in the post-credit crisi eurozone, stating that, ‘quite remarkably, while the insolvent states are visited upon by stern IMF and EU officials, are constantly reviled by the 'serious' press for their 'profligacy' and 'wayward' fiscal stance, the banks go on receiving ECB liquidity and state funding (plus guarantees) with no strings attached. No memoranda, no conditionalities, nothing.’

It came as a significant shock when the European Union began suggesting at the start of this week that they may take Varoufakis’ advice and begin disbanding the ‘Troika’. Yesterday’s news that the EU had officially begun talks with Athens on re-negotiating Greece’s current debt deal provided investor sentiment with a major boost and left more than one commentator scratching its head. Perhaps Varoufakis is the catalysts that Brussels was waiting for in order to shift away from a blanket programme of severe austerity and back towards growth based policies. Such a move would represent a repeat of the ‘New Deal’ which was instigated across the globe during the early 1930’s and such a move could yet preserve the single currency from a slow and painful death.

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