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By Oren Laurent
President, Banc De Binary
New Year traditionally begins with a celebration followed by resolutions; even if many of us fail in our attempts to be strong-willed, we at least start the year as we intend to go on, on a positive note. For the Eurozone however, this philosophy is foreboding. The currency began 2015 by falling to its lowest value since 2010. Is there hope for economic growth or is it all downhill for the continent?
Two key factors drove the EUR/USD down to 1.204, levels not seen since the midst of the first Greek crisis. The first is the interview that Mario Draghi, president of the European Central Bank, gave to the German newspaper Handelsblatt in which he voiced concerns about inflation and growth. It’s no surprise that the dramatically low oil prices are adding to deflationary pressure, and figures this Wednesday are expected to show that retail prices have stagnated across the currency bloc. Analysts have interpreted Draghi’s comments to mean that a policy of quantitative easing could come any time soon.
The second key influence on the euro is the political uncertainty in Greece. As citizens prepare to vote at the end of the month, the left-wing Syriza collation is fiercely outspoken against EU austerity measures. The group is currently topping the polls, leading to speculation about the country’s future in the currency group. Reports suggest that a total of 2.5 bln euros have already been withdrawn from banks in panic.
Before you mourn your weak euros, however, it’s not all bad news. True, the risk of the continent succumbing to a deflationary spiral is real and concerning. Yet, we have reason to be optimistic about Draghi’s likely solution. If successful, his QE programme could inject cash into the banking system and stimulate the economy. The US Federal Reserve adopted a similar approach to push down interest rates and is now reaping the rewards; it is phasing out stimulus and enjoying market growth.
As for Greece, it may be a small solace, but at least no potential crisis could be worse than the last one. According to the German paper, Der Speigel, the Chancellor and Finance Minister believe the Eurozone is now strong enough to withstand a potential Greek exit. The economies of Portugal and Ireland have recovered and are far stronger than when the financial crisis struck; plus, the Eurozone has implemented various reforms and a bailout fund to safeguard itself in the future.
In the short-term, the weaker euro will be welcomed by European exporters. They’ll be looking to take advantage of offering cheaper products than their foreign competitors. In the long-term, the economy could be better off than at present if aggressive action and stimulus has the desired effect. Draghi will certainly be hoping that 2015 ends on a more positive note than it began.
On behalf of the Banc De Binary team, I’d like to take this opportunity to wish all my readers a wonderful, healthy and successful New Year. Thank you for your continued support of our company here in Cyprus.
www.bancdebinary.com
