Dubai: Greece is at it yet again.
On Wednesday, the Greek government’s parliamentary speaker said that Athens will not make a payment to the International Monetary Fund on June 5, unless it has reached a deal with its creditors by then.
And as the world moves ahead to the showdown, some analysts say a Grexit is becoming inevitable by the day, and if this happens, it could cause the euro to even fall below parity with the dollar.
“A Grexit would send some initial tremors through the financial system and initially help weaken the Euro further,” Ole Hansen from Saxo Bank told Gulf News.
The euro fell as low as $1.1065 early on Wednesday, before trading at $1.1100, down 0.4 per cent. The single currency has shed a fifth of its value since January 2013, and analysts say the it may slide even below parity with the dollar in case of a Grexit, an event that may have a spill over impact.
“It would go to parity with dollar very very soon if Greece comes out of Eurozone. If this happens, there would another avalanche. Other countries like Portugal, Spain which also have similar problems may also want to move out of the Eurozone,” Pradeep Unni, senior relationship manager, Richcomm Global said.
The four-month standoff between Europe’s most indebted state and its lenders has triggered an unprecedented liquidity squeeze that pulled the Mediterranean nation’s economy into a double-dip recession. Record deposit withdrawals and the state’s increasing difficulty in meeting debt payments have sparked renewed doubts about the country’s place in the euro area.
Meanwhile, Greek stocks have delivered the highest returns of all primary equity indices tracked by Bloomberg in the last month, while Greek bonds are the best performing sovereign securities tracked by Bloomberg’s World Bond Indexes over the same period amid optimism an agreement may be within reach.
Contrarian view
However, Credit Suisse says its highly unlikely that Greece may exit the Eurozone.
“We think an exit is still very unlikely, though if it happened it is likely to be a short term negative for eruo,” Giles Keating of Credit Suisse, said.
“Leaving Greece aside, we think the recent rise in the euro is coming to an end. 1.15 is a major chart resistance and unlikely to be broken. We see the Fed going ahead to tighten in September and think this will cause the dollar to gain strength versus the euro, back towards parity.”
A Julius Baer’s analyst feels a renewed flaring-up of the Eurozone debt crisis is unlikely.
“Regarding Greece, we believe this is an isolated but not a systemic issue to the Eurozone, which can be handled by the Eurozone and its banks. Hence, we do not believe this will revive safe-haven demand from European investors,” said Carsten Menke, at Commodity Research, Julius Baer.
