Ann Jay Cee

What will happen to the euro if Greece leaves? After that's ECB meeting the euro is at a low, but what will happen next?

amideislas

If that happened a few years ago, I think the Eurozone would have disintegrated. If Greece left, so would every other member shackled by the over-valued currency.

But now that the EU has come to its senses and finally seems to be willing to adopt of policy of stimulus rather than austerity, even if Greece leaves, the rest will have some hope for a future, and (hopefully) be a lot less inclined to exit.

Ann Jay Cee

Thanks. What effect do you think that will have on the euro against the pound? I'm buying a house in Spain and am watching the exchange rate closely.

Moses2013

It looks like the pound will be strong in 2015, so a good time.
For the EU economy that's great for exports, but people going abroad will get less for their €.

bigglesworth

A lot of different stuff mixed up here. The valueof a currency has little or nothing to do with is viability. So what level will the Euro be in six months? A Year? and against what?
Clearly if anyone actually KNEW they would be rich.
What is happening here is nothing much per se to do with Sterling Euro but rather the dollar. So US economy is stronger, QE stopped, and a possibility of interest rates rising faster than the Eurozone is very positive for the dollar. Looked at from the other end, the Eurozone continues to stagnate amd inflation to weaken (although stripping out energy and commodity prices, inflation is higher than most realise).
And now the ECB has decided to fire its "big bazooka" of QE. (Although again it is not what people think - it is not burden sharing and as a percentage of Eurozone GDP is is little more than a wet fart in a thunderstom). But the message it sends is terrible - "the Eurozone is in trouble guys"
So Euor dollar seems pretty clear for the next few years. Dollar stronger again and Euro weaker. Parity beckons in my view. Greece wil simply compound that weakness.
So what about Sterling Euro?
UK economy is doing nearly as well as US, unemployment actually IS dropping in the UK, unlike the USA where it is hidden, and all the PMIs are still strongly positive. So logically Sterling should share dollar strength.
But it won't. Firstly because the UK has not cut spending as fast as it could have done ) although we might have complained at the human price. But more importantly because we have a very uncertain election outcome. And markets HATE uncertainty. And there is the very real possiility of the SNP holding the balance of power.
We can expect the currency boys to give sterling a good kicking every chance they get.
So where does that leave everything? My money is on sterling gaining further against the Euro, on the dollars coat tails and losing some more against the dollar.

Separately, the elephant in the room remains the dollar. The Euro is rapidly losing friends, and has little real prospect of retaining its position as a potential reseve currency. The dollar could really motor. And that poses a whole new set of problems for the Eurozone. Most tradeable commodities are priced in dollars. So the decline in oil and other commodity prices may prove little help to the Eurozone (even Germany).
This dollar move is something a very fragile global recovery can ill afford. But it is difficult to see what the US can do to slow its rise-they cannot very well cut interest rates any further. So the only real weapon central banks have is to RAISE interst rates elsewhere.
I am usually in broad agreement with Ami. Not this time I regret. The contradictions in the Euro have been headlined by the allocation of QE along national lines. IMveryHO we are entering the endgame. It may well not be pretty

Garbatellamike

Great summary biggles thanks for that, all seems entirely logical.

amideislas I have to say that I think the stimulus v austerity argument is a bit simplistic as they do not seem to be mutually exclusive - still room (need?) for both if the World is to avoid an economic meltdown - just saying!" I do share your assessment on the GREXIT - spot on.

amideislas

Thanks Mike,

Yes it is rather simplistic - especially compared to Bigglesworth's excellent analysis.

And yes, or course there's room for both, but the austerity policy hasn't generated great results so far, and now it's to the point where it's truly politically risky. The EU and ECB have been warned ad-nauseum from day 1 to focus on stimulus over austerity, which has gone all but ignored - until now.

So, my question for Bigglesworth is if it's reasonable to interpret your view as suggesting that the Eurozone economy is likely to stay stagnant and not enjoy much improvement, - that it's all just too little, too late?

And what happens if the Euro drops to parity with the dollar? doesn't that make European exports more attractive?

The far left seems to be gaining political traction again - hypothetically, if a left-leaning political phase were to sweep Europe again, couldn't that potentially have negative consequences for the European economy, leading to even more uncertainty?

InVinoVeritas

If my interject on a fascinating thread (which I have only discovered as a result of a stupid thread on winter fuel allowance being being consigned here):-

The reason that QE will not work in Europe is because the governments who have been too politically self-interested to make real structural reforms to meet the challenge of the new century (yes, that was 15 years ago) will see QE as a reason to still do nothing and expect that the rewards that other governments have reaped (notably the US and the UK) will come flooding in, in some Canute-like way! As I keep saying, in Europe, the worst is yet to arrive.

bigglesworth

Ami. Lots of VERY interesting points. Yes I do believe that on balance the Eurozone will just limp along. Until it falls over. Will Greece precipitate a crisis? Probably not, as the Commission seem to have prepared for it. But if Syriza do win the terms of any renegotiation will be fascinating. And I think Spain has both local and general elections this year? Portugal in the autumn. The UK in the Spring. And then what about Italy? It is a very very bumpy road ahead.
I suppose the fundamental question is also whether they can keep the show on the road through the next drop in business activity – which logically cannot be that far away. Seems an extraordinary question to consider with business activity in some of the Eurozone so low, but it is the RoW that will determine it. A conspiracy theorist of course might point out the coincidence of a slowdown in German export sales and the launch of QE.
IMO it is a really dangerous time for the Eurozone, and yes I think it is too little too late – although, interestingly, Tim Congdon of all people thinks it about the right amount! I myself cannot see that the world actually needs lower German interest rates. And from what I understand the Mittelstand does not finance expansion through bond issuance. So the question to me separates out into the issuance of new money fostering increased lending, and its consequent effect on the exchange rate. The first – well has it actually had that effect in the UK and the USA? Not from what I read. So the latter must be what they are actually doing. Which simply means ”currency war”.
A lower Euro will of course facilitate Euro-based sales to the rest of the world. But it also makes the input cost of said sales higher where they are reliant on imports. And does nothing to alter the fundamental trade imbalance between Eurozone countries.
The key points I suppose are whether they are a: import dependent and/or b: value added. German high end manufacturing will benefit. French wine producers also. Spanish tomato growers. It is all the stuff in between that will see reduced benefit – although there will of course be some. But undoubtedly a lower Euro will help the Eurozone on balance.
What it will NOT do is accelerate the necessary reforms in France etc. (AND Germany, which has not reformed as much as they pretend). Where I am is quite a left wing part of France, - not far from Hollande’s heartland. The conversation has moved seamlessly from crowing about the comparative strength of the Euro versus the dollar, to blaming “Anglo-Saxon” bankers for the recession, then to blaming them again for driving the dollar down, and now again for sucking growth away from the RoW.
Not once have I heard any of the more “establishment” figures here question why the French (and wider European) economy should be so vulnerable to that. Although most of the small business people I know spend half their time complaining about taxation and regulation, none of this seems to filter up to the administrative classes, and the rest working every hour that God sends just to put food on the table.
I agree entirely the big question here is political. I suspect that sterling will track the opinion polls until the election. If they hold as they are, and the outcome is a Labour SNP alliance, I suspect that will be profoundly negative for Sterling just as a move to the Conservatives would support it. But what if UKIP holds? And the Greens? All would seem to increase uncertainty and give the markets an excuse to kick sterling lower.
But I don’t think it helps us to stick traditional labels on the parties that are proposing change. Syriza, Front National in France, Podemos, UKIP, etc etc all seem to have much the same solutions. Are they “Leftwing” or “Rightwing”? All seem equally dangerous to me. Historically, alliances between the Left and the nationalists have not had a good outcome, and that seems an increasing possibility. The discontent is coming from that sector of the population that the Left has regarded as its own, and who are suffering most from “globalisation”, “free movement” etc and who are also seeing least benefit from the measures taken to combat the GFC or whatever you want to call it. It is all very well driving an asset price surge to make people feel richer and therefore borrow and lend more, but if you don’t have any assets in the first place, it is not a long step to believing that it only benefits “the rich”. A “normal” left wing phase in Europe might be the least of our worries.

Sorry it is a bit rambling. I think I am really trying to get my thoughts together. I dont thnk I had quite realised what a critical year it is for the UK and the EU. So I am very eager to hear your thoughts.

bigglesworth

Sorry IVV I have only just seen your post. I think we are on the same page.

EMR

I sell in Euros in the UK so you would expect that costs of imports into the UK would fall but it is not a simple as that.The march of the dollar is increasing with few exceptions like oil most commodities so Eurozone manufacturing costs will rise which will be passed on to the consumer which will result in higher inflation in the Eurozone. The same problems seen in the UK of prices outstripping wages will become a significant factor in the Eurozone. These are the down sides of QE.
UK property buyers and holiday makers will benefit but those trying to sell and return to the UK are seeing a significant reduction in their final sterling payments.
A contact in property in Portugal is seeing a hardening in prices required by UK owners and even increases in an attempt to offset the fall in the Euro.

Ann Jay Cee

Thank you to all the people who have posted comments here, I appreciate the time and effort. It's been very interesting to find out what you think.

cyrian

If you are using an FX broker then you can normally pre-book your Euros at a future exchange rate. (or several future dates).
Why don't you see what rate they will offer you and that will give you an indication of where they think that the pound vs euro will go?
The markets don't like uncertainty like elections but are also influenced by global factors - which means you really can't second guess the market.
Consider spreading your purchase of euros over several months to protect against any rise or fall in the exchange rate.